What Are Free Zones and Mainland in Dubai?

When setting up a company in Dubai, one of the first and most important decisions is choosing between a Free Zone and the Mainland jurisdiction. This choice determines your target markets, operational flexibility, and tax obligations. The main distinction lies in the geography of business activity: Mainland companies can operate directly in the UAE market and across the GCC (Gulf Cooperation Council), while Free Zone companies were originally designed for international business conducted outside the UAE.

However, this is not a strict barrier. Mechanisms exist that allow Free Zone companies to access the Mainland market, while Mainland entities can also engage in international trade. The right option depends on your strategy: focusing on the local market, or expanding globally with maximum tax incentives.

Key differences: Free Zone vs. Mainland

Free Zone

• Ownership: 100% foreign ownership guaranteed, with no requirement for a local sponsor.
• Taxation: Exemptions from corporate and income tax for up to 50 years. Since June 1, 2023, Free Zones are subject to federal corporate tax, but many entities qualify as Qualified Free Zone Persons (QFZP) and can still benefit from a 0% rate under certain conditions.
• Operational scope: Primarily focused on international trade. To operate in the UAE local market, a local distributor or Mainland branch is required.
• Customs duties: Free Zone companies are exempt from import and export duties.
• Registration: Quick and transparent, though license costs are usually higher.
  
  

Mainland

• Ownership: The previous requirement of a 51% local partner has been lifted for most business activities – companies can now be 100% foreign-owned.
• Taxation: Subject to federal corporate tax: 0% on annual profits up to AED 375,000 and 9% on profits above this threshold.
• Operational scope: Full and unrestricted access to the UAE and GCC markets without intermediaries.
• Customs duties: All applicable import/export duties must be paid.
• Registration: Can be more time-consuming, with costs varying depending on business activity and office space.
  
  

Office requirements: virtual, serviced, or physical?

Office space requirements are another critical factor.

In Free Zones:

• Ready-to-occupy offices – fully furnished turnkey spaces with admin support.
• Shell & core offices – empty units customized by the tenant.
• Serviced offices – flexible, small offices or cabins with full services (reception, internet, cleaning).
• Virtual offices – the most cost-effective option, providing a legal address, mail handling, and meeting rooms by the hour. Note: Not all Free Zones allow virtual offices for initial company setup, or they are limited to specific license types.
  
  

In Mainland:

Requirements are stricter. To obtain a license from the Dubai Department of Economic Development (DED), a physical office lease contract (Ejari) is almost always mandatory. Virtual offices are generally not accepted for initial licensing, which increases upfront costs.

Practical Recommendations

• Choose Mainland if: your target market is the UAE and GCC, or your activity involves retail, construction, supply within the UAE, or direct services to local clients.
• Choose Free Zone if: your business is international (import/export, logistics, IT, consulting for overseas clients), or if you want to reduce initial costs with a virtual or serviced office setup.
• Check the zone’s specialization: Some Free Zones, such as DMCC, Jebel Ali Free Zone, or Dubai Airport Free Zone, are large-scale clusters with world-class infrastructure. Others, like Dubai Internet City or Dubai Media City, are more niche and industry-specific.
• Consult experts: Regulations evolve regularly. A qualified real estate or business setup consultant will help you select the optimal structure for your budget and model, avoiding costly mistakes.
  
  

The right choice between Free Zone and Mainland lays the foundation for a legal, profitable, and scalable business in Dubai. Define your priorities, calculate your office leasing costs, and only then make your final decision.