Difference Between Free Zone company & Local Market company in UAE?

Different investors from all over the world have different aims when it comes to set up business in Dubai. The most common reason that UAE is considered a business hub is because of the different and multiple business opportunities available for different people.

The two options available for company setup in Dubai is the mainland and the free zone area. Now arrives the dilemma of which one is the best and which option should be chosen.

Both have certain plus points, some drawbacks, and various investment opportunities. A close analysis is required when selecting the option, so here is a guide for that.

What Is a Mainland Company?

A mainland company is an onshore company licensed by the Department of Economic Development (DED) of the related emirate which is allowed to do business in the local market (free zone & non free zone areas) as well as outside UAE without any restriction.

Advantages Of Setting Up Mainland Business in Dubai

  • Mainland Company in Dubai is exempted from corporate tax.
  • There is no minimum capital requirement for the formation of Mainland Company.
  • Mainland companies can trade with other mainland companies in Dubai or UAE. They have the flexibility to do their business in any part of UAE or beyond. This feature sets them apart from free zones companies because they are restricted to operate their business in their respective free zone.
  • Mainland companies also have more options for business activities unlike free zone businesses e.g.
  • Companies in Dubai Media City must work in the media or closely related industries. However, there is no such limitation for mainland business and it can open up to wider UAE economy with much scope of diversity.
  • Mainland businesses can choose their office location anywhere in Dubai. This feature allows them not only to trade with local market but can also open up multiple branches of the company thus enabling them to build a strong presence in UAE.
  • Mainland companies are allowed to take on governmental work unlike free zone companies which are prohibited from undertaking government contracts and are only allowed to carry out private commercial work.
  • There is no limitation on the number of visas on mainland license. However, the eligibility to obtain visas depends upon office space. More office space, a greater number of visas you may get.
  • There is no currency restriction for mainland business in Dubai.
  • 100% repatriation of capital and profits are admissible.
  • Registration process for mainland companies is simple and hassle free. Also, there is no yearly audit requirement.

What is a Free Zone Company?

A Free zone company is incorporated within a designated jurisdiction of the emirate where the company is allowed to do business inside the same free zone. Most of the entrepreneurs, who want tax optimization, opt for a free zone formation as the free zone authorities bring out various benefits and incentives to the business setup in the zone.

The economic importance of Free Zones in Dubai

So, now that we’ve gone over the goal of having Free Zones in the economy, we must understand why the authorities created these areas in the first place. Creating Free Zones aimed to promote the UAE’s expanded economic growth. They sought to do this through favorable company setup in each of these special economic areas. They also offer some fantastic incentives for foreign companies to come and operate in the UAE. 

There’s been remarkable growth in the Emirati economy, with the introduction of Free Zones playing a significant part in elevating Dubai’s status and that of the United Arab Emirates altogether. How does the importance of Dubai’s Free Zones translate into the overall economy? When looking specifically at Free Zones, 2018 figures from the Dubai Free Zones Council found that Dubai Free Zones were responsible for 31.9% of Dubai’s gross domestic product (GDP) during the first nine months of that year. 

As Dubai and the other emirates have looked to diversify beyond the traditional oil and hydrocarbon sectors, the Free Zones have contributed to powering robust non-oil external trade growth. From 2000 to 2019, non-oil external trade in Dubai grew from 143 billion Dirhams to 1.271 trillion Dirhams. While we have yet to see the full figures from 2020, Dubai Customs reported that Dubai trade figures were about 551 billion Dirhams in the first half of 2020, with transactions increasing 24.5 per cent to 11.2 million during the first nine months of 2020. The numbers point to the city being able to bounce back from the COVID pandemic. 

Many of the UAE trade hubs are centered inside Free Zones and attract a host of foreign investors. With their enterprises, these investors bring more job opportunities, competitive salaries, a solid knowledge base, and an overall level of excellence. With most of the city being home to foreigners, Dubai is one of the most preferred ex-pat destinations for its high rate of growth, safety, and quality of life, with many of them working in Free Zone companies.

Free Zone Benefits and Costs

What are the four primary benefits of starting a business in one of the UAE’s Free Zones? The reason organizations find the Free Zone model attractive is to seamlessly do business beyond borders, especially if your customer base is in the Middle East rather than solely in the UAE. While each area has incentives to attract people, each Free Zone enjoys the following rewards for prospective clients:

  • 100% foreign ownership
  • 100% repatriation of capital and profits
  • 100% import and export tax exemption
  • 100% exemption from income and corporate taxes

The fundamental difference between mainland and free zone is that Free Zone Company cannot conduct its operation in non-free zone without the support of a local agent whereas a mainland company freely operates its business activities anywhere in UAE.

If you would like to set up a general trading company or grocery store in Dubai, contact ANUVI Business Solutions today.

For more information, speak/chat with our experts on +971506472494 or email us at info@anuvibs.com.

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