One of the biggest considerations when starting your own business in Dubai is to choose the right type of business entity. You generally have three main choices: mainland, free zone or an offshore entity. Each has its own merits and drawbacks with the right choice depending on your business activity performed by your company, intended trading partners, ownership structure and other factors.
So, how do the company types compare? Which one is right for your business? Our blog explores these questions in detail, comparing the costs, challenges, and benefits of each jurisdiction.
1. Free Zone Company
Free zones are economic areas where goods and services can be traded, usually with preferential tax and customs rates. By operating in one of Dubai’s 30 free zones, you can enjoy benefits such as 100% foreign ownership, 100% corporate tax exemption, 100% repatriation and capital funds.
Ownership Structure
One of the key benefits of setting up in Dubai’s free zones is 100% full ownership of your business. There is no need for a local sponsor or service agent to start a business.
Business Activity
As a free zone company, you are not entitled to do business in the mainland. If your target market is the UAE, you will need to establish a mainland company with a local sponsor.
Office Requirements
There is a wide range of office space choices available within each free zone, ranging from virtual desks to offices and even flexi-desk.
Visa Requirements
The number of visas granted will differ from free zone to free zone and usually depends on the size of the office space you lease. Typically, free zones in Dubai will permit 3-6 visas.
At DMCC, the number of visas that your company is eligible for depends on the size of the selected office:
- Flexi desk: up to 3 visas.
- Serviced office: 4 to 5 visas depending on the size of the office.
- Physical space: 1 visa for every 9 square meters.
Cost of Setup
The cost to set up and run your business in one of Dubai’s free zones varies significantly. Below is a breakdown of the four main fees incurred with Dubai business set up and operations:
- Company Registration Fee
- Licence Fee
- Office Fee
- Share Capital
For a more comprehensive overview of how different the company set up costs are between Dubai’s different free zones, click here.
2. Mainland Company
Mainland companies (often referred to as an onshore company) benefit by having access to the local market and outside the UAE. To get registered as a Mainland LLC company, you must obtain a licence by the Department of Economic Development (DED) of the respective emirate.
Ownership Structure
Prior to the new UAE laws on commercial company ownership, foreign business owners established as a mainland company in Dubai could only acquire 49% of company shares, leaving the remaining 51% acquired by a local sponsor. However, as of December 1st, 2020, the UAE passed a law to permit 100% foreign ownership for mainland companies. Since the resolution is so new, it is not yet implemented and fully explained as yet.
Business Activity
A company present in the mainland is free to do business anywhere in the UAE. They are also eligible to do business inside any free zone in the emirates.
Office Requirements
Unlike a free zone or offshore company, mainland companies have a mandatory office space requirement. The minimum office space requirement set by DED is to lease a minimum 200 sq ft office. Virtual offices are not allowed to mainland companies.
Visa Requirements
There is no visa limitation for a mainland company. The number of residency visas granted is based on the size of leased office space or a business facility. So, the larger the office space, the greater the number of residence visas your company may become eligible for. Generally, it is calculated as one visa per 80 square feet.
Cost of Setup
Some of the initial costs that business owners can expect when setting up a mainland company are:
- Licence fee - The DED offers various licence options, but the standard trade or service licence is typically 5% of the rent. A General Trading licence Instant licence, Merchant licence and launch licence doesn’t apply to this.
- Initial Approval from DED
- Dubai Chamber of Commerce
- Approval of trade name
- Office rent
- Attestation of Memorandum of Association (MoA)
- Drafting of contract and court agreement attestation
- Registration with Ministry of Economy
- Trade license fee
- UAE local Sponsorship fees depend on the nature of the business
3. Offshore Company
Offshore companies are not entitled to operate any business activity in the UAE directly. However, an offshore company can be a shareholder of any UAE mainland or free zone companies, enabling this entity to enter the UAE market and allow business activities through such subsidiary companies.
Ownership Structure
An offshore company can have full ownership of the company but cannot have a physical presence in the UAE.
Business Activity
An offshore company in Dubai can do business in the mainland and any of the free zones across the UAE.
Office Requirements
An offshore company cannot have any physical office in the UAE. Their office must be located outside the country.
Visa Requirements
Offshore companies are not authorised for issuing a visa. Only mainland and free zone companies in Dubai/ UAE can issue a resident visa.
Cost of Setup
Offshore companies are relatively affordable to set up. Given that they have no minimum requirements for capital deposits before incorporation, no costs associated with office space or obtaining a visa, setting up an offshore company in Dubai is the cheapest option out of the three jurisdictions.
Choosing the Right Jurisdiction for Your Business
Neither free zone, mainland nor offshore, is the ‘best’ option for your company. Which jurisdiction is suitable for your business needs depends on its associated goals and strategy.
Below is a summary of the information discussed in the blog.
|
Free Zone |
Mainland (Onshore) |
Offshore |
|
|
Ownership Structure |
100% foreign ownership |
100% foreign ownership |
100% foreign ownership |
|
Business Activity |
You can trade within the Free Zone and internationally. Trade within the UAE is possible through a local agent/distributor. |
You can trade throughout the UAE and internationally. |
They are free to do business outside the emirates. They cannot have a physical setup for doing business within the UAE. |
|
Office Requirements |
Not compulsory to have a physical office space. Many free zones in Dubai allow you to create a business licence by offering virtual/flexible desk solutions. |
Minimum 200 sq ft office. |
You are not allowed to have any physical office in Dubai. |
|
Visa Requirements |
Setting up your company in a Dubai free zone automatically makes you eligible for a visa. Visa costs differ per free zone. |
The number of residency visas granted is based on the size of leased office space. Generally, it is calculated as one visa per 80 square feet. |
No residency visas issues. |
|
Cost of Setup |
Medium-High |
High |
Low |
Set Up Your Business in DMCC
If you think setting up as a free zone entity is your best option, look no further than DMCC. As the world’s #1 free trade zone and centre of global commodities trading, DMCC offers your business unrivalled benefits and services to help your business succeed.
To learn more about selecting the right business entity and the best free zone for your business in Dubai, download our free ‘2021 Dubai Free Zone Guide’.
*The material provided in this blog is for general information purposes only and is subject to change based on government policy and regulations.