Guide to Business Setup in Dubai (1) : Mainland or Free Zone
Guide to Business Setup in Dubai (1) : Mainland or Free Zone
2022-09-27
Guide to Business Setup in Dubai (1) : Mainland or Free Zone
To set up your business in Dubai , the most frequently asked questions by investors are "What is the difference between a free zone company and a mainland company?", "Should I register a free zone company or a local company?". Answers to these questions lie in the difference between a Dubai Free Zone company and a local company (or a Mainland company), which is the primary issue for most investors deciding to set up their business in Dubai.
To really understand the difference, you can start from the following aspects:
- Business Area. This is arguably one of the biggest differences between these two types of companies. Legally speaking, free zone companies are not allowed to conduct business activities outside the free zone where it is registered, and a free zone company cannot open stores or shops outside its free zone and deal with individual consumers directly; while local companies do not have this restriction, they can open stores everywhere in Dubai and engage in individual customers direclty, according to business activities permitted by the license.
- Business Activities. Most of the free zones focus on some specific industries. For example, the DIFC, Dubai International Financial Center, mainly focuses on attracting financial-related companies, while the Dubai Internet City concentrates more on Internet-related companies; of course, there are also a number of "comprehensive" free zones. There is no specific industry focus, such as the earliest Jebel-Ali Free Zone, Dubai South Free Zone and the recently integrated Dubai Integrated Economic Zone. In general, free zone companies have fewer choices of business activities than local companies.
- Office Lease. This is often overlooked by investors when making investment decisions: free zone companies can only lease offices in the free zone, while local companies in Dubai have the freedom to choose offices for leasing across the Emirate. This often becomes an important consideration for the company's subsequent development.
- Shareholding. Before June 1, 2021, this can be said to be the essential difference between free zone companies and local companies; but after June 1, 2021, since Dubai allows 100% foreign ownership of local companies to engage in more than 1,000 activities, Objectively speaking, the advantages of free zone companies in this regard are greatly weakened. Especially for trading companies in Dubai, local companies can now basically be 100% owned by foreign investors, no need for any local involvement, not to mention 51% company shares owned by locals as before. However, for some specific activities, the establishment of a local company in Dubai still requires to involve local people as local service agents, and there are certain restrictions. In this regard, free zone companies still have certain advantages.
- Share Capital. There are no rigid regulations or capital verification requirements for the registered capital of local companies in Dubai; while free zone companies generally have relevant requirements for the company's registered capital, and capital verification is required in many cases.
- Procedures. The formation of a free zone company is relatively convenient, and all procedures can basically be completed at the relevant free zone authority. The formation procedure of a local company in Dubai is relatively complicated, involving procedures of different government departments; the establishment process is relatively uncertain, and normally it is advisable to form a mainland company with the assistance of a corporate services consultant. In addition, local company applicants or their authorized persons must be present to complete the process, which cannot be done remotely; free zone companies sometimes allow company establishment applicants to complete registration through video and other methods.
I hope that through the above introduction, you can really understand the difference between Dubai Free Zone companies and local companies, and this blog provides you with a little useful information for the decision-making of Dubai company formation.
Should you have any questions, feel free to let us know.