Mainland vs free zone: how to choose for your UAE company

A mainland company is licensed by its emirate’s economic authority and can trade with customers across the UAE and abroad. A free zone company is licensed by its free zone authority and trades freely within the zone and internationally, but needs a distributor, a mainland branch or a permit to sell into the mainland. Both allow full foreign ownership for most activities, and both are within corporate tax.

Key takeaways

• Mainland companies can trade with customers across the UAE and abroad; free zone companies need a mainland distributor, branch or permit to sell into the mainland.
• Foreign investors can own 100% of most mainland companies and of free zone companies.
• Goods imported into a free zone carry 0% customs duty until they move into the mainland.
• Standard corporate tax is 0% up to AED 375,000 and 9% above; a qualifying free zone person pays 0% on qualifying income, 9% on the rest and cannot use small business relief.
• Since the 2025 amendment to the Companies Law, a company can move its registration between a free zone and the mainland, keeping its legal personality, subject to conditions.

On this page 9 sections

Mainland and free zone side by side

The two differ most on where the company can sell, how imported goods are taxed and which corporate tax regime can apply. Set-up steps are in setting up a mainland company and setting up a free zone company, fees in what a trade licence costs, and other topics under Company setup guides.

What mainland and free zone mean

The mainland is the UAE outside the free zones, where each emirate licenses businesses through its own economic authority. A free zone is a defined area whose own authority licenses companies under its own rules.

On the mainland the licensing body is DET in Dubai, ADDED in Abu Dhabi, the economic development departments of Sharjah, Ajman, Umm Al Quwain and Ras Al Khaimah, and Fujairah Municipality, according to u.ae. Invest in Dubai says Dubai mainland companies can trade with individuals and businesses in Dubai, across the UAE and internationally, with 100% foreign ownership open for more than 1,000 commercial and industrial activities. ADDED says most activities on the Abu Dhabi mainland need no minimum capital.

Foreign ownership of mainland companies

Up to 100% foreign ownership

Since Federal Decree-Law No. 26 of 2020 took effect in early 2021, foreign investors may own 100% of mainland (onshore) companies, without a majority Emirati shareholder or local agent, except for activities of strategic impact, for which the Cabinet sets licensing conditions that may restrict foreign ownership.

A free zone has its own authority, its own regulations and usually a sector focus. Invest in Dubai counts more than 20 free zones in Dubai alone, and u.ae lists zones in all seven emirates, from ADGM and KEZAD in Abu Dhabi to RAKEZ in Ras Al Khaimah.

Foreign ownership of free zone companies

100% foreign ownership

Companies in UAE free zones can be fully owned by foreign investors, without the need for a local partner.

Each free zone authority decides which legal forms it registers, usually from the LLC, the free zone company (FZ Co.), the free zone establishment (FZE), the public company and the branch of a local or foreign company; company legal forms compares them.

Selling to mainland customers from a free zone

Not directly, in most cases: access to the mainland market is regulated.

Free zone sales into the mainland

Mainland sales via distributor, branch or approval

A free zone company may trade freely within its free zone and internationally, but to sell goods or services in the UAE mainland it must work through a licensed mainland distributor or set up a mainland branch or company; direct mainland sales generally need mainland licences or approvals.

The licence or permit comes from the emirate where the work is done.

In Dubai

Dubai Executive Council Resolution No. 11 of 2025 lets the Department of Economy and Tourism (DET) authorise a free zone establishment to work elsewhere in the emirate in one of three ways.

Dubai licences and permits for free zone establishments

Branch licence AED 10,000 a year; permit up to 6 months AED 5,000

Under Dubai Executive Council Resolution No. 11 of 2025, a free zone establishment may operate in Dubai outside its free zone with a DET licence for a branch in the emirate, a DET licence for a branch operating out of the free zone (AED 10,000 a year, licences valid one year and renewable), or a temporary DET permit for specific activities valid up to 6 months (AED 5,000), and must keep separate financial records for that activity.

The resolution also says:

• Every route needs the free zone authority’s approval, a valid free zone licence and, for a regulated activity, the sector regulator’s approval.
• A branch elsewhere in Dubai pays the fees under DET’s general legislation, not the resolution’s fixed fee, and neither kind of branch is a legal person separate from its parent.
• A permit covers only activities on a list that DET issues with the free zone authorities.
• The establishment can use its existing free zone staff, and work in another emirate needs that emirate’s licences.

In Abu Dhabi

ADDED issues a dual licence that allows an establishment registered in an Abu Dhabi free zone to carry out its activities and manage its business outside the free zone. It is one of seven economic licence types ADDED lists, applied for through TAMM; trade licence types describes the others.

Each route, and how a free zone company uses it, is set out in working with the mainland from a free zone.

Corporate tax compared

Both pay corporate tax. A mainland company is taxed at the standard rates, and so is a free zone company unless it is a qualifying free zone person (QFZP).

Standard corporate tax rate

9%

UAE Corporate Tax is charged at 9% on the part of a Taxable Person's Taxable Income that exceeds the threshold set by Cabinet Decision, and at 0% on the part up to that threshold.

Upper limit of the 0% band

AED 375,000

The 0% Corporate Tax band covers Taxable Income up to and including AED 375,000 in a Tax Period; Taxable Income above AED 375,000 is taxed at 9%. The band applies once per Taxable Person, regardless of how many businesses it carries on.

The middle row is a cost of the regime: a QFZP does not get the 0% band (FTA free zone guide, section 3.3). Nor does a free zone address bring the 0% rate by itself; it depends on conditions and on the type of income, explained in corporate tax in free zones and partly checked by the free zone de minimis test.

Rates for a qualifying free zone person

0% on Qualifying Income; 9% on other Taxable Income

A Qualifying Free Zone Person pays Corporate Tax at 0% on its Qualifying Income and at 9% on Taxable Income that is not Qualifying Income, provided it keeps meeting all the conditions (adequate substance, Qualifying Income, no election into the standard regime, transfer pricing compliance, audited financial statements, de minimis test).

A QFZP that fails a condition, or elects out, is taxed at the standard rates for a fixed run of tax periods:

Period out of the regime

5 Tax Periods (the failing period plus the next 4)

A Qualifying Free Zone Person that fails any condition at any time during a Tax Period stops being a QFZP from the start of that Tax Period and for the four following Tax Periods, five Tax Periods in all; an election into the standard rates has the same effect from the start of the Tax Period in which the election takes effect.

Small business relief is the other difference. Ministerial Decision No. 73 of 2023 excludes QFZPs and members of large multinational groups, so among free zone companies only those outside the QFZP regime can elect it, on the same conditions as a mainland company. Ministerial Decision No. 131 of 2026 extended the relief to tax periods ending on or before 31 December 2029; before that, it covered only tax periods ending on or before 31 December 2026.

Small business relief revenue limit

AED 3,000,000 revenue

A resident Taxable Person can elect Small Business Relief, and be treated as having no Taxable Income, for a Tax Period in which its Revenue, and its Revenue in every previous Tax Period, does not exceed AED 3 million; once Revenue exceeds AED 3 million in any Tax Period, the relief is no longer available.

Worked example

Taxable income of AED 500,000 in one tax period

The income figure is an illustration. For the free zone company, all of it is qualifying income, and neither company elects small business relief.

1. Mainland company: the first AED 375,000 is taxed at 0%, so the tax on it is AED 0.
2. The rest is AED 500,000 minus AED 375,000 = AED 125,000, taxed at 9%: AED 125,000 × 9% = AED 11,250.
3. Free zone company that is a QFZP: AED 500,000 × 0% = AED 0.
4. The same free zone company after failing a condition in the period: taxed like the mainland company, AED 11,250, and at the standard rates for the next four tax periods as well.

Corporate tax: AED 11,250 on the mainland, AED 0 for the QFZP, and AED 11,250 once the free zone company loses its status.

If the mainland company’s revenue had stayed within the small business relief limit in this and every earlier period, the period ended on or before 31 December 2029 and the company met the relief’s other conditions, it could elect the relief and be treated as having no taxable income.

Moving between mainland and free zone later

A company is no longer locked into its first choice. Since the 2025 amendment to the Commercial Companies Law, it can move its registration between a free zone and the mainland, subject to conditions.

Moving a company's registration

Re-registration between authorities allowed

Since Federal Decree-Law No. 20 of 2025, a company may, by special resolution of its general assembly or with the approval of an absolute majority of its partners, move its commercial registration from one competent authority to another (for example between a free zone and the mainland) while keeping its legal personality, subject to conditions.

The new Article 15 bis of the law sets the conditions:

• the commercial register systems of both authorities allow the transfer;
• no entry on the company’s register record blocks it;
• the authority it leaves and the authority it joins both approve;
• for a joint stock company, the Ministry of Economy and Tourism or the securities regulator approves, as the case may be;
• the transfer decision is published in the way the authority decides.

The law names the regulator as the Securities and Commodities Authority, which became the Capital Market Authority on 1 January 2026. A company leaving a free zone must also meet the controls set by the mainland authority, the Ministry or the regulator, as the case may be, and bring its position into line with the Companies Law and the decisions issued under it. Moves involving a financial free zone follow separate controls that the Cabinet is to issue.

How the differences play out

Neither option comes out ahead in general: the weight of each difference depends on where a business’s customers are, whether it moves goods, the premises it needs and its tax position.

Customers. A mainland licence suits businesses whose customers are mainly in the UAE, because a mainland company trades with them directly wherever they are. A free zone company selling into the mainland adds a step: a distributor, or a branch or permit that needs its own approvals and, in Dubai, its own fees.

Goods. A free zone suits businesses that trade mainly abroad or import goods to re-export them, because goods held in the zone carry no duty:

Customs duty in free zones

0% customs duty in the free zone; duty on entry to the mainland

Free zone companies can import, export and re-export goods, with 0% customs duty on goods imported into the free zone and no customs duty on goods stored there for re-export; goods become subject to UAE customs duty only when moved into the mainland market.

Goods that enter the mainland, whether imported directly by a mainland company or moved out of a free zone, usually pay the general rate:

General customs duty

5% of CIF value

The general UAE customs duty on goods imported from outside the GCC is 5% of the CIF value (cost, insurance and freight up to the place of importation); some goods are exempt and some carry higher rates under the GCC common tariff.

Worked example

Goods with a CIF value of AED 200,000

The value is an illustration. The goods come from outside the GCC, carry the general rate and keep the same customs value throughout.

1. Imported into a free zone and re-exported: customs duty AED 0.
2. Imported by a mainland company: AED 200,000 × 5% = AED 10,000.
3. Imported into a free zone and later moved into the mainland: AED 200,000 × 5% = AED 10,000, due when the goods enter the mainland.

Customs duty: AED 0 while the goods stay in the zone or leave the country, AED 10,000 once they enter the mainland.

The rules on duty, exemptions and re-exports are in customs duty and export and re-export.

Premises. A shop or site outside the free zones falls under mainland rules, including Ejari registration of the lease in Dubai. Inside a free zone the authority’s own options apply; Invest in Dubai says most Dubai zones offer flexible office facilities.

Tax and accounts. For a small business the comparison turns on revenue and the type of income, and the corporate tax audit duty falls differently:

Audited financial statements for corporate tax

Revenue over AED 50,000,000, any QFZP, and every Tax Group

For Tax Periods starting on or after 1 January 2025, a Taxable Person that is not a Tax Group and derives Revenue exceeding AED 50,000,000 in the Tax Period, and every Qualifying Free Zone Person whatever its Revenue, must prepare and maintain audited financial statements; every Tax Group must prepare and maintain audited special purpose financial statements in the form the FTA sets.

Banking. The licence does not change the Central Bank’s account-opening rule for small and medium businesses:

Business account opening for low-risk SMEs

3 business days (delay up to 2 weeks)

Under the CBUAE SME Customer Protection Regulation (Circular 2/2026, effective 13 September 2026), which applies to banks and finance companies licensed by the Central Bank, a bank must open a low-risk SME customer's account within 3 business days of receiving a complete application; if other valid reasons delay it, the delay may not exceed 2 weeks and the bank must explain it, and it may open the account with limited transactions meanwhile.

The documents and checks are covered in opening a business bank account.

What about offshore?

Offshore is a third kind of registration. Jafza, the Jebel Ali Free Zone Authority, gives an offshore company registered with it a certificate of incorporation but no business licence, so the company cannot carry on commercial activity with persons in the UAE, and it deals with Jafza through a registered agent.