UAE is a growing trade and economic hub with the Mainland and Free Zone companies contributing significantly to the growth of the economy. The business-friendly policies in UAE make it a prime choice for foreign investors to set up their establishments and grow business here in UAE. There are different advantages and Disadvantages for free zones and mainland companies in the UAE. An investor can choose either free zone or mainland depending on their business requirements.
Advantages and Disadvantages of Free Zone and Mainland Companies in UAE
It is major decision-making for every investor when it comes to moving to the UAE mainland from the Free Zone company. There are multiple factors that determine the choice:
- More Flexibility in doing business in UAE Local Markets
- Reduced Rental expenses and maintenance costs if the office is away from the city center
- Hire more employees, open new branches, and more.
There are a few important points to consider for the free zone company before moving to the mainland, those are:
1. Scope of Business Operations
For companies in the specific industry sector, it is advisable to remain in a free zone rather than on the mainland.
For example, Dubai Airport Free Zone or Hamriyah Free Zone is ideal for setting up an international trading company in UAE. Thus, companies can easily facilitate trade through airports and seaports rather than being on the mainland.
The Free Trade Zones have easy access to customs and upscaled logistics setup for easy transit of goods to and from the UAE.
Also, free zone companies can benefit from similar businesses around and work in collaboration.
2. List of Business Activities
Few business activities are only available in the Free Trade Zones and not available on the mainland.
Hence, while transferring the free zone company license to the mainland, the investor must ensure whether a similar business activity is available on the Mainland.
The investor must approach the new licensing authority in the mainland i.e., the Dubai Economic Development for the list of activities.
Also, the process of approvals, procedure for obtaining a business license, UAE residence visa, etc., varies between the mainland and free zone.
3. 100% expatriate ownership in Mainland Companies of UAE
There is a path-breaking change in UAE Commercial Law, the 100% foreign ownership in mainland companies. However, there should be due diligence in choosing the right business jurisdiction.
The 100 % foreign ownership in the UAE mainland has created a buzz in the corporate landscape and is expected to give rise to a host of business opportunities.
It has given a choice for those who are already operating in UAE to gain full control of their business, as well as for the free zone companies to move to the mainland.
4. Shareholder Profile
In the mainland, especially for service companies, the shareholder must have professional qualifications in the field of activity and also attend a training session by the American University and qualify for an exam conducted.
Also, the educational records of the shareholders stamped by the Ministry of Foreign Affairs are required to be submitted for issuing the business license.
Whereas in Free Zones, there are no such pre-approvals for service licenses. Few Free Zones in UAE allow company formation remotely without the presence of the shareholder.
5. Office Space and UAE Residence Visa
For registering a company in UAE, obtaining the business license for the desired business activity is mandatory irrespective of being in the Free Zone or the mainland.
Free Zones offer a wide range of customized office solutions ranging from Flexi-desk to executive office spaces.
On the mainland, there are mostly business centers that offer Flexi-desk solutions. Most of the other businesses choose to have a physical office location on the mainland as their office address. Mainland company setup cost varies depending on the office rent, furnishing cost, and other administrative expense.
6. UAE Residence Visa through Company Formation
When it comes to UAE Residence Visa, the mainland companies offer a two-year visa for the employees. Similarly, for the Free Zones the investor and employee visa is mostly three years.
On the mainland, the employee visa quota depends on the office space, whereas in Free Zone there is a visa quota for a business license that is pre-set.
Free Zone office space is standard and must have to be upgraded in case of an increase in staff size, which could turn to be a costly affair when compared to the mainland.
The rentals for the commercial spaces in the mainland are much more competitive with more options becoming ready across UAE.
7. Flexibility – Scope of Business Operations
The Free Zone business is mostly targeted towards services, general trading, and commercial sectors. These sectors export the majority of their products and also venture into the local UAE market through distributors.
Free Zone regulations and policies govern the Free Zone company operation in UAE.
In the case of a mainland registered company, the company can take office anywhere in the UAE and start doing business there. The company can be registered with the chamber of commerce and participate in UAE government tenders for procuring large contracts,
8. Branch of a Free Zone Company
It is not possible to transfer a Free Zone company in UAE directly to the mainland. Opening a branch of the Free Zone Company with the respective Department of economic development is an option to expand its presence in the mainland of UAE.
Another option is to liquidate the Free Zone company and open a new company in the mainland of UAE. Then, the company can continue doing business within the local UAE and GCC markets.
Moving from Free Zone Company to Mainland Business Jurisdiction in UAE
If a company is moving from the free zone to the mainland it will be considered a new entity. However, the history of the free zone company remains. Free Zone company must cancel all residence visas, company contracts, bank accounts, VAT statements, and invoices, before moving to the mainland.
When choosing the Free Zones or Mainland region for company formation, the investors must have a clear understanding of their business expansion and growth plans. Depending on specific business requirements the Free Zones and Mainland in UAE have distinct advantages and disadvantages that investors can benefit from.
To know more about Company Formation in UAE, talk to our expert team right away!
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