Starting a business in the UAE? One of the biggest questions you'll face is whether to set up your company on the Mainland or inside a Free Zone. Both options offer great opportunities—but they're very different in how they work, what they cost, and who you can sell to. Picking the right setup could save you headaches and money down the road.
Let's break down everything you need to know about Mainland and Free Zone company formation in Dubai and Abu Dhabi in 2025 — in simple, straightforward terms.
Mainland or Free Zone: What's the Real Difference?
At first glance, it might look like just a matter of location. But the choice affects everything from your business ownership rights to taxes, visas, office space, and even who your customers can be.
Here's the lowdown:
| Factor | Mainland | Free Zone |
|---|---|---|
| Ownership | 100% foreign ownership for most sectors | 100% foreign ownership guaranteed |
| Market Access | Sell anywhere across the UAE | Restricted to free zone or export markets |
| Office Space | Must have a physical office | Flexi-desk or dedicated office options |
| Visa Quota | Unlimited based on office size | Limited, depends on package |
| Setup Time | 2 to 4 weeks, sometimes longer | Usually 1 to 2 weeks, faster and simpler |
| Costs | Moderate to high | Generally lower, varies by free zone |
| Corporate Tax (2025) | 9% on profits above AED 375,000 | Zero if qualifying, otherwise 9% |
| Govt. Contracts | Eligible | Not eligible |
| Allowed Activities | Wide range | Restricted to free zone-approved activities |
| Audit Requirements | Often required | Usually required annually |
| Trading with Mainland | Direct, no restrictions | Must use distributor/agent or dual license |
Why Choose Mainland? The Upside & Challenges
Pros of Mainland Setup
- Access to UAE market: Sell freely anywhere in Dubai, Abu Dhabi, or beyond.
- No middlemen needed: No distributor or agent to sell your products locally.
- Bid for government tenders: Essential if you want to work on public sector projects.
- Unlimited visas: Sponsor as many employees as your office size allows.
- Wide activity list: Most business types are allowed.
- Full ownership: 100% foreign ownership is allowed for many sectors now.
But there are a few catches…
- Office rental is mandatory — which can be pricey.
- More paperwork and approvals, as multiple government bodies are involved.
- Corporate tax at 9% applies on profits above AED 375,000.
- Certain sectors like oil or banking still need a local partner.
What Makes Free Zones Attractive?
The Perks of Free Zone Setup
- 100% foreign ownership guaranteed, always.
- Lower costs to start and maintain your business.
- Fast and simple setup through one authority.
- Zero corporate tax if you meet qualifying criteria (mostly for export/re-export activities).
- Flexible office options: Rent a desk, shared workspace, or a full office.
- Great for exports and global clients: Ideal if your market is outside the UAE.
- Specialized zones: Media City, DMCC, ADGM, and others cater to specific industries like tech, finance, or media.
But keep these limits in mind:
- You can't sell directly to the UAE mainland market — you'll need a local distributor or dual license.
- Business activities are limited to what the zone allows.
- Visa quotas depend on your package and office size.
- Not eligible for government contracts.
- Annual audits and compliance are usually mandatory.
- Your office must stay within the free zone premises.
Which Setup Fits Your Business? Here Are Common Scenarios
| Business Type | Recommended Setup | Why? |
|---|---|---|
| Retail shop or café | Mainland | You need a local license to sell to walk-in customers |
| E-commerce (export) | Free Zone | Lower costs and zero tax, perfect for global sales |
| Consulting firm | Depends | Mainland if serving UAE clients; Free Zone if remote/international |
| Tech startup | Free Zone | Supportive ecosystems, tax benefits, and fast setup |
| Import/export | Free Zone | Duty-free warehouses and smooth international shipping |
| Construction | Mainland | Local contracts and licenses are a must |
| Freelancer | Free Zone | Affordable, flexible setup with no local sponsor needed |
How Does Setup Work? Quick Overview
Mainland Process
- Choose your business activity (check with Department of Economic Development)
- Apply for initial approval
- Reserve your trade name
- Find a local partner if required (depending on activity)
- Secure office space and register Ejari lease
- Submit documents and pay fees
- Collect your license and start visas processing
Free Zone Process
- Pick the free zone and business activity
- Submit application with passport and business plan
- Choose office or flexi-desk package
- Pay package fees
- Get your license and apply for visas
- Renew annually with audit if required
Tax, VAT & Compliance in 2025
- Corporate Tax: Mainland companies pay 9% on profits over AED 375,000. Free zone companies pay 0% if they meet the qualifying conditions (mainly if their income comes from outside UAE).
- VAT: Both must register if turnover exceeds AED 375,000 per year.
- Customs: Free zone companies only pay customs duty when goods enter the UAE mainland.
- Audit: Free zones typically require audited accounts annually; mainland companies must follow UAE tax and audit rules.
Quick Tips to Help You Decide
- Want to sell directly in the UAE market? Mainland is the way.
- Looking for fast, low-cost setup and export focus? Free Zone is your friend.
- Want to bid on government contracts? Mainland only.
- Planning a tech startup or freelancer business? Free Zone zones offer attractive packages.
- Need unlimited visas and a physical office? Mainland offers more flexibility.
- Interested in an industry-specific community or incubator? Choose a free zone tailored to your field.
Final Thoughts
There's no one-size-fits-all answer — your choice depends on your business model, clients, and future plans. Mainland companies offer full access to the UAE market, more visas, and government contracts. Free Zones offer lower costs, tax benefits, and a hassle-free setup — perfect for startups, freelancers, and export-focused firms.
If you're still unsure, consulting a business setup specialist or accountant can help you navigate rules, avoid pitfalls, and pick the best fit — saving you time and money in the long run.
