Difference Between Mainland, Free Zone, and Offshore Company Establishment
To set up a business in the UAE, the investor should first know the different concepts like Mainland, Free zone, and Offshore, where each has its characteristics, advantages, and disadvantages. There are many differences between mainland, free zone, and offshore companies. When setting up a business in Dubai, entrepreneurs need to find the best type of business company depending on the priorities of the intended business. Most importantly, the investor should have a thorough knowledge of the three jurisdictions and how and on what basis you should determine the most appropriate jurisdiction. Going forward, the following details will give you a clear view of how the three jurisdictions will work.
Mainland
A mainland company can also be called an offshore company licensed by the relevant emirate’s Department of Economic Development (DED). Land companies are licensed depending on their business activities. Effective June 1, 2021, the UAE government granted ex-pat ownership (100% ownership) to significant companies involved in all business activities, removing the requirement for business companies to have a local partner.
Free Zone
Overall, there are 40+ free zones in the UAE. Each is incorporated within the designated jurisdiction of the particular emirate, where the relevant company is permitted to set up a Free Zone Company in the UAE. Often, entrepreneurs seeking tax optimization opt for free zone business entities as free zone authorities allow various benefits and privileges for setting up businesses. A free zone company can establish its business in the region by registering a branch with the DED and the Ministry of Economy. But the branch can only carry on in the same name as the parent company and carry on the same business activity as the parent company.
Offshore
A foreign company formation means a company is established in another jurisdiction. It does not operate as a branch company; no physical office is required or permitted under this facility. There is no physical presence when registering as a foreign company in the UAE. Before entering any foreign company, it is essential to know that converting an offshore or free zone company into an offshore company is impossible. Offshore Free Zone companies have different legal documents, statuses, and applicable regulations. The chart below will explain these three jurisdictions’ differences, advantages, and disadvantages.
Difference between Mainland Free zone and Offshore Companies in The UAE
| Mainland | Free zone | Offshore | |
| Ownership | Unlike before, foreign investors establishing business entities in the mainland can now retain 100% ownership. | No such restrictions are imposed in free zone companies so that the ex-pat can hold 100% of the company’s shares. This means
Establishing a business that does not require a local partner or service agent.
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An ex-pat is allowed to retain full ownership of the company. But a foreign company is not permitted to have a physical presence in the UAE.
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| Office Space | Having office space (EJARI purpose) for the mainland is mandatory, a minimum of 200 sq. | Having an office space not required & you can setting up a company with a virtual office. | Not being allowed to have a physical Office in the UAE. They can only have a physical office outside the UAE., |
| Business Scope | A company established offshore is unrestricted and allowed to do business anywhere in the UAE.
Free zone or territory
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Regarding Free Zone setup, firms outside the Free Zone (manufacturing/selling) are generally not allowed.
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Offshore companies are prohibited from doing business in the UAE and can do business outside the UAE.
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| Visas | Depending on the campus size, visas are allowed | 1 to 6 visas are permitted depending on your preference. Choose how many visas you need. | Visas are also not issued offshore, as physical office space is prohibited.
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| Capital Requirement | Minimum capital investment must be shown only. For paperwork, they are making it a very investor-friendly process. | In the case of free zone businesses, the minimum capital established by the emirate will be determined. | There is no minimum capital requirement for foreign company formations in the UAE. |
| Govt Authorities For Company Setup | They have to get permission from various authorities like DED, Dubai Municipality, etc. | Each free zone has rules and regulations regarding specific jurisdictions and operations. | The concerned Free Zone Authority of that jurisdiction will give their approval. |
| Audit | In landscape companies, it is necessary to prepare an audit before the end of the financial year. | All FZ companies are not required to have their accounts compulsorily audited. | Auditing is not a mandatory requirement. It is optional. |
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