Set up your company in the Free-zone or in the Mainland?

choice between free zone and mainland in the emirates

We are often asked what the difference is between a Free-zone company and a Mainland company. This point, which seems quite simple, is often misunderstood, even though it is the basis of all projects to create a company in the Emirates. As is often the case in the UAE (and elsewhere!), the answer is in the law.

What is a Free Zone company in Dubai?

First of all, when we talk about a Free zone company, we are talking about a company registered with a Registry that is located in a Free-zone. A free zone is a special area that is geographically delimited. This explains why there is sometimes confusion between the name of the Registry (e.g. DMCC) and the geographical location of the Registry (e.g. Jumeirah Lake Towers – JLT).

It is a special zone because it is a free zone: this means that goods entering and leaving it (exporting outside the UAE) are not subject to customs duties. For companies providing services (consulting, etc.) registered in a free zone, the notion of customs duty is not appropriate. The notion of “where the service sold is performed” should be used instead. In the case of a free-zone company, the service must be provided from the geographical area in which the company is registered. The consequences of this definition are that a Free-zone company can only have offices and staff located within the geographical limits of the Free-zone.

What is a Mainland company?

Regarding the Mainland company, it is registered with the DED (Department of Economic Development) Registry in Dubai, Abu Dhabi, etc. It is sometimes referred to as an LLC (Limited Liability Company) but this is not entirely accurate (a Free-zone company can be legally an LLC and a Mainland company is not always an LLC).  Unlike the Free-zone company, it can rent offices in all the Emirates (outside the Free-zone). A trading company can therefore import and sell its goods locally. A service company can provide all its services there.

So the question we are often asked is: can I work in the Mainland with a Free zone company?

For a service company, a Free zone company can have customers (B2B or B2C) in the Mainland. This is not a problem as long as the services are provided from the company’s offices located in the Free-zone. For a trading company (sale of goods), it must go through a distributor/importer (registered in the Mainland) to be able to sell on the local market.

Article 6 of Law No. 13 of 2011 states, “A natural or legal person may conduct an Economic Activity in the Emirate only through a Business licensed by the DED.” An “Economic Activity” being defined as “Any commercial, industrial, artisan, occupational, agricultural, service, or any other for-profit activity authorized in the Emirate.”

This law therefore makes it clear that it is illegal to operate with a Free-zone company in the Mainland.

It is therefore important to have the right type of company to operate legally in the UAE. We are often told “I know I don’t have the right type of company, but it doesn’t matter, everyone else does“.  It should be noted that Article 29 of the above-mentioned law provides for a fine of up to AED 100,000 in the event of non-compliance with these provisions…

Moreover, in the event of litigation (civil or criminal proceedings before the Dubai Court, complaint to Consumer Rights, etc.) involving the entrepreneur’s liability, the fact of not having the right status will have serious consequences (no limited liability, fine, no insurance cover, etc.). Finally, since the introduction of VAT in the Emirates and the forthcoming arrival of corporate tax, there will be more and more controls. We can therefore only advise you to have the right type of company for your business!

Our firm, present in Dubai since 2009, will assist you in all the administrative steps of the creation of your company in the Emirates.
Our team consists of lawyers, accountants and PROs. We invite you to contact us at the following address: support@merritt.group.