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The difference between Mainland and Free Zone for business setup in UAE

February 19, 2020

The jurisdictions are quite different and each one serves different company structure, let’s breakdown the difference between the two:

The Mainland

Mainland is basically the location outside of a free zone area. Companies in the mainland are onshore companies with their licenses issued by the Department of Economic Development (DED) or any related department in other Emirates. These companies are allowed to do business without restrictions whatsoever in the local market and outside the UAE.

Even if there are many benefits in establishing a company in the mainland, it has a little downside because a foreign individual needs a local sponsor before being able to go forward with their venture. This local sponsor should be a UAE national. A local sponsor owns at least 51% of your business when it is already established. A local sponsor can be three types. This means that a foreign person can form a company in the UAE in three ways: individual sponsorship, corporate sponsorship, or local service agent. A local sponsor that you need to obtain depends on the business activities that your company operates.

Individual sponsorship is simply a UAE national who can either be male or female and above 21 years of age. These people do not need to be experts in your chosen field, but they need to be either business owners, professionals, or government employees. The two parties (foreign individual and sponsor) can agree on a 51% for the local sponsor or a set fee or profit share agreement.

Corporate sponsorship is basically a company that is run by a UAE national/s. They can also agree on either the local sponsor owns 51% of the company or the local sponsor gets a set fee annually. A local service agent is required for professional foreign individuals (like engineers, doctors, etc.) plan to set up a business in their area of expertise. Local service agents do not hold any shares or stakes in the company but only act as the foreign individuals’ representative for administrative matters.

The Free Zone Authorities

A free zone authority is basically a location in the UAE that has its jurisdiction in the said location. It has its own set of rules and regulations. Companies that are established in a free zone are allowed to do business in there or outside the UAE.

There are many benefits in free zones that are most commonly known as free zone benefits. This means that companies that are established in free zones can enjoy 100% ownership without needing any local sponsorship as a contrast to establishing a company in the mainland.

Industry-specific free zones are all over the UAE that focuses on the needs and requirements of a certain industry.

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