Free Zone vs Mainland Dubai: Which is Best for Entrepreneurs?

Dubai continues to shine as a leading global destination for business. Its strategic location, modern infrastructure, and pro-investor policies attract entrepreneurs from all corners of the world. The two primary options available for businesses which is mainland and free zone.

Today, there are more than 45+ free zones in the UAE, each offering unique business advantages, for a complete overview check how many free zones in UAE . Understanding the difference between a Free Zone vs Mainland Dubai is crucial before making the right business decision.

A Mainland company is registered directly with Dubai’s Department of Economic Development and Tourism (DET). This license allows businesses to operate anywhere within the UAE. A Free-Zone company, on the other hand, registers with a specific Free Zone Authority (like IFZA, DMCC, or DAFZA) and operates under its distinct rules, often enjoying special incentives.

Recent legal reforms in the UAE have somewhat blurred the lines between these two. Notably, many sectors on the Mainland now permit 100% foreign ownership, a benefit previously exclusive to Free Zones. This makes the choice more nuanced than ever. 

This blog aims to clarify the differences between the Dubai Free Zone license vs Dubai Mainland setups. It helps entrepreneurs determine which structure best aligns with their business objectives and operational needs.

A Business Setup in Dubai Mainland offers broad operational freedom within the UAE but comes with specific requirements. Understanding these features is vital for making an informed decision:

• Ownership and Sponsorship: Historically, most mainland companies required a UAE national sponsor holding 51% ownership. However, significant legal changes under the UAE Federal Decree-Law No. 26 of 2020, amending Federal Law No. 2 of 2015, now allow 100% foreign ownership for a wide range of commercial and industrial activities. 

Some professional service licenses may still require a Local Service Agent (LSA), a UAE national who is paid an annual fee but holds no shares.   

• Market Access: The primary advantage of a mainland setup is unrestricted access to the entire UAE market. Businesses can trade directly with local customers, suppliers, and other mainland companies. They are also eligible to bid for potentially lucrative government contracts and projects.
• Office Space Requirements: A physical office space with a registered tenancy contract (Ejari) is mandatory for obtaining a Mainland license in Dubai. While shared office solutions might be permissible for some initial registrations, a dedicated physical presence is the standard requirement.
• Visa Sponsorship: Mainland companies generally have more flexibility in obtaining employee visas compared to free zones. The number of visas available typically depends on the size of the leased office space.
• Cost Structure: The Dubai mainland license cost and overall setup expenses tend to be higher initially compared to basic free zone packages. Costs typically range from AED 15,000 to AED 50,000+ per year, mainly due to the mandatory office lease (Ejari) and additional government fees.
• Compliance Obligations: Mainland companies are directly regulated by the DET and relevant federal ministries (like the Ministry of Labor). Compliance involves adhering to the UAE Commercial Companies Law, labor laws, and specific industry regulations.

Pros of Getting a Mainland License in Dubai:

• Unrestricted access to the entire UAE market.
• Eligibility to undertake government projects.
• Greater flexibility in choosing office locations across Dubai.
• Generally, higher visa quotas are possible compared to basic free zone packages.

Cons of Getting a Mainland License in Dubai:

• Typically, higher initial setup and annual costs are due to mandatory office space.
• Some professional activities might still require a Local Service Agent (LSA).
• Potentially more complex regulatory procedures involving multiple government bodies.

However, businesses can transition from the mainland to a free zone setup if they seek to benefit from lower costs, simplified processes, or 100% foreign ownership, offering a more flexible long-term business strategy.

A Dubai Freezone Business Setup provides a popular alternative, especially for international businesses, offering distinct incentives and a streamlined process.

• 100% Foreign Ownership Model: This has always been a cornerstone benefit. Foreign investors retain complete ownership and control of their company without needing any local partner or agent.
• Tax Incentives and Customs Benefits: Free zones offer significant tax benefits for Free Zones in Dubai. Companies meeting the “Qualifying Free Zone Person” criteria can benefit from a 0% corporate tax rate on their qualifying income. They also enjoy exemptions from customs duties on goods imported into the free zone for re-export.
• Office Flexibility: Free zones offer a wide range of office solutions, from affordable flexi-desks and shared workspaces to private offices and warehouses. This flexibility allows businesses to choose an option that fits their budget and operational needs.
• Dual License and On-shore Permit Options: Some free zones now offer dual license or on-shore permit options. This means a free zone company can obtain a permit to trade on the mainland without needing to establish a full mainland entity, offering greater flexibility in accessing the broader UAE market.
• Restrictions for Mainland Trading: The main limitation is that free zone companies cannot trade directly with the UAE mainland market. To sell goods or services onshore, they typically need to partner with a local distributor or agent, or establish a licensed mainland branch.
• Governing Bodies: Each free zone (there are many Types of Free Zones in Dubai) operates under its own independent authority (e.g., DMCC Authority, DAFZA Authority). This authority acts as a single point of contact for registration, licensing, visas, and other administrative services, simplifying the process. explore the complete list of free zones in Dubai

Pros of Getting a Dubai Free Zone License:

• Guaranteed 100% foreign ownership.
• Potential for 0% corporate tax on qualifying income and customs duty exemptions.
• Lower initial setup costs are possible with flexi-desk options.
• Streamlined registration and administrative processes via the Free Zone Authority.
• Often, industry-specific zones offer networking and infrastructure benefits.

For more detailed information, visit this blog: Benefits of Free Zone Company in Dubai.

Cons of Getting a Dubai Free Zone License:

• Direct access to the UAE mainland market is restricted.
• Not eligible to bid directly for UAE government contracts.
• Operations are geographically confined to the specific free zone.
• Visa quotas might be limited based on the chosen office package.

However, despite these limitations, many businesses find the Dubai Free Zone setup to be an ideal solution for their needs, particularly those focused on international markets.

Choosing between Dubai Free Zone Vs Dubai Mainland depends heavily on the specific needs of the business. This table highlights the key differences:

Commentary on Factors

Choosing between a Dubai Mainland and Free Zone setup requires understanding the following differences that can impact your business strategy and costs:

• Ownership: The mainland now matches free zones for many activities, reducing this as a deciding factor unless an activity still requires an LSA on the mainland.
• Market Reach: This remains the biggest differentiator. If the primary target market is within the UAE, the mainland offers direct access. Free zones excel for international operations.
• Office Requirements: The mainland’s mandatory office rule increases initial costs. Free zones offer cheaper entry points with flexi-desks, ideal for startups.
• Licensing Authority: Mainland involves dealing with DET and potentially other ministries. Free zones offer a one-stop shop experience through their authority.
• Tax Considerations: Free zones offer potential corporate tax advantages for qualifying businesses, a significant factor for profitability.

Choosing the right setup can be complex. Take expert assistance from Safe Ledger to ensure your Dubai business is structured for success and compliance.

Tax Benefits for Free Zone Vs Mainland in Dubai

When comparing the tax benefits of setting up in a Dubai Free Zone versus a Dubai Mainland setup, several factors come into play. Both offer unique advantages depending on the type of business and its specific goals.

Dubai Mainland Tax Considerations

Businesses established on the Dubai Mainland are subject to the UAE’s standard corporate tax rate of 9% on taxable profits exceeding AED 375,000. However, certain activities may be eligible for exemptions or special arrangements under specific industries or government programs. Additionally, businesses operating on the mainland must comply with the 5% VAT (Value Added Tax), which applies to most goods and services.

Dubai Free Zone Tax Considerations

Free zones offer several tax incentives that make them highly attractive for international businesses and investors. The primary benefit is that many Dubai Free Zones allow companies to qualify for a 0% corporate tax rate on qualifying income for a fixed number of years, typically 15-50 years. Moreover, many free zones provide customs duty exemptions for goods imported into the zone for re-export, further reducing costs for businesses engaged in international trade.

Free zone companies are also subject to 5% VAT on most goods and services, but specific free zones may have exceptions that apply, especially for those designated as specialized zones like Dubai Media City or Dubai Internet City.

Upcoming Changes in Tax Landscape

Starting in January 2025, the UAE will implement a 15% global minimum tax (often referred to as the top-up tax) for large multinational enterprises with annual revenues exceeding EUR 750 million. This change is part of the UAE’s commitment to the OECD’s Base Erosion and Profit Shifting (BEPS) initiative. While this tax primarily targets larger corporations, it will influence both mainland and free zone businesses in terms of global compliance.

This tax change may affect multinational companies looking to set up in Dubai Free Zones and could lead to changes in the tax landscape for these entities. However, small to medium enterprises (SMEs) with revenues below this threshold will not be directly impacted by this new global minimum tax.  

The ideal choice between mainland and free zone depends entirely on the business model and strategic goals.

Choose Mainland If:

• The primary target market is local consumers or businesses within Dubai and the UAE.
• The business involves retail operations, restaurants, or construction services requiring a physical presence accessible to the public.
• The plan includes bidding for UAE government contracts or projects.
• Unrestricted logistical operations across the UAE are essential.

Examples: Retail shops, local service providers (clinics, salons), construction companies, restaurants.

Choose Free Zone If:

• The main business involves import/export, international trade, or re-export activities.
• The business is primarily service-based (consulting, IT, media), serving international clients.
• The venture is an e-commerce business shipping internationally or using a local distributor for UAE sales.
• The priority is 100% foreign ownership with potential tax benefits and lower initial setup costs.

Examples: International trading companies, e-commerce stores, tech startups, media agencies, and global consultancies.

• Hybrid Models: 

Businesses can sometimes combine elements. A popular approach is establishing a company in a free zone (for ownership and tax benefits) and then opening a licensed branch on the mainland to access the local market. 

This offers a blend of advantages but involves managing compliance in both jurisdictions.

Understanding the setup process, costs, and ongoing compliance for each jurisdiction is crucial for budgeting and planning. Both involve distinct steps and financial commitments.

Dubai Freezone Business Setup Costs

The free zone license cost in Dubai varies significantly based on the chosen zone, license type, activities, and facility needs. Costs are often presented in packages.

Cost Components: Dubai Mainland Company Formation

The total cost of Dubai mainland company formation typically involves higher initial mandatory costs, particularly for office space.

Note: All costs are estimates as of late 2025 and can vary. Consultation with a setup expert provides accurate pricing.

Process & Compliance:

• Mainland: Involves DET approval, MOA notarization, Ejari registration, potential external ministry approvals, and annual license/Ejari/Chamber renewal. Audits are mandatory for Limited Liability Company Formation (LLCs).
• Free Zone: Streamlined process via the Free Zone Authority, lease agreement within the zone, potential external approvals for specific activities, and annual license/lease renewal. Audit requirements vary by zone but are common.

Explore resources for starting a low-cost business setup in Dubai to learn more about affordable business formation options.

Selecting the wrong jurisdiction can lead to operational hurdles and unexpected costs. Common errors include:

• Misjudging Trading Limitations: Setting up in a free zone without fully understanding the restrictions on trading directly with the mainland market.
• Ignoring Office/Visa Costs: Focusing only on the initial license fee and underestimating the mandatory costs of office space (especially mainland) and visa processing.
• Overlooking License Activity Restrictions: Choosing a license that does not accurately cover all planned business activities, leading to compliance issues later.
• Not Aligning Structure with Future Expansion: Selecting a free zone that might be cost-effective initially but lacks the infrastructure or regulatory scope for planned future growth or diversification.

Ultimately, the choice between a Dubai Free Zone Vs a Dubai Mainland setup depends entirely on the specific business model, target market, budget, and long-term goals. The mainland offers unparalleled access within the UAE, while free zones provide a cost-effective, tax-efficient base for international operations.

Decision Checklist

1. Market Focus: Is the primary market local (UAE) or international? (Local → Mainland; International → Free Zone)
2. Ownership: Is 100% foreign ownership critical, and is the activity eligible on the mainland? (Both offer 100% for many activities)
3. Budget: Is minimizing initial setup cost the top priority? (Free Zone flexi-desk is often cheaper initially)
4. Office Needs: Does the business require a prominent physical office or storefront accessible to the public? (Mainland) Or can it operate from a shared space? (Free Zone)
5. Government Contracts: Is bidding for government projects a key objective? (Mainland)

Making the right choice sets the foundation for success. For expert guidance tailored to specific business needs, consider consulting with professionals. Safe Ledger offers comprehensive business setup services, helping entrepreneurs navigate the complexities of both mainland and free zone formations in Dubai. Contact Safe Ledger today for personalized advice.