Difference Between Freezone and Mainland in UAE: A Comprehensive 2025 Guide

Choosing between a freezone and mainland company setup in the UAE is a pivotal decision for entrepreneurs, investors, and established businesses. Each jurisdiction offers unique advantages, regulatory frameworks, and operational boundaries that can significantly impact business growth, ownership, and compliance.

This in-depth guide explores every facet of the mainland vs. freezone debate, enabling you to make an informed, strategic choice for your UAE venture. Whether you're a startup founder, expanding multinational, or solo entrepreneur, understanding these differences is crucial for your success in one of the world's most dynamic business environments.

The UAE's business-friendly policies, strategic location, and tax advantages make it a global hub for commerce. However, navigating the regulatory landscape requires careful consideration of your business objectives, target market, and operational needs.

Introduction

The UAE's business landscape is divided into several jurisdictions, the most prominent being mainland and freezone. Understanding their differences is crucial for legal compliance, operational efficiency, and maximizing your business potential in the region.

With recent reforms in ownership laws and the introduction of corporate tax, the decision between mainland and freezone has become even more significant. This guide provides up-to-date information for 2025 to help you navigate this critical choice.

What is a Mainland Company?

A mainland company is registered with the Department of Economic Development (DED) of the respective emirate. It is permitted to conduct business across the entire UAE and internationally, with no restrictions on trading within the local market or with government entities.

What is a Freezone Company?

A freezone company is incorporated within one of the UAE's designated free zones—special economic areas offering incentives like full foreign ownership, tax exemptions, and simplified setup processes. However, freezone companies are generally restricted to operating within their zone or internationally, and need a local distributor or branch to trade directly in the UAE mainland market.

Mainland vs. Freezone: Side-by-Side Comparison

Feature	Mainland Company	Freezone Company
Ownership	100% foreign ownership (sector-specific, since 2021); some sectors require local partner	100% foreign ownership for all business types
Scope of Business	Can operate anywhere in the UAE and internationally	Can operate within the freezone and internationally; mainland trade requires a local distributor or branch
Office Requirement	Physical office mandatory (size depends on license)	Office optional; flexi-desks and virtual offices allowed
Visa Eligibility	Unlimited (subject to office size)	Limited (typically 6–7, depending on office size/type)
Audit Requirement	Annual audit usually mandatory	Varies by freezone; some require, some do not
Corporate Tax	9% on profits above AED 375,000 (from June 2023)	0% on qualifying freezone income; otherwise, 9% applies
Customs Duties	Subject to UAE customs duties	Exempt within the freezone; duties apply when trading with mainland
Setup Cost	Generally higher (due to office, approvals, etc.)	Generally lower, especially for startups/small businesses
Regulatory Authority	DED & relevant ministries	Freezone authority
Trading with Mainland	Direct, unrestricted	Not allowed unless using a local distributor or opening a mainland branch
Government Contracts	Eligible	Not eligible
Business Activities	2,000+ activities, broad flexibility	Limited to zone's focus (e.g., tech, media, logistics)

Key Differences Explained

Ownership Structure

Mainland: Traditionally required 51% local Emirati ownership, but recent reforms allow 100% foreign ownership in most sectors, except for strategic industries (e.g., oil, defense).

Freezone: Always allows 100% foreign ownership, with no need for a local sponsor.

Business Scope & Trading Rights

Mainland: Can trade anywhere in the UAE (all emirates) and internationally, including with government and private entities.

Freezone: Can trade within its freezone and internationally. Direct business with the UAE mainland requires a local distributor or the establishment of a mainland branch.

Office Space Requirements

Mainland: Must lease a physical office registered with Ejari; office size affects visa quotas.

Freezone: Flexible—can opt for physical offices, flexi-desks, or virtual offices, depending on the zone.

Visa Eligibility

Mainland: No cap on visas (subject to office space).

Freezone: Limited visas (usually 6–7 per company, depending on office type).

Taxation and Customs

Mainland: Subject to 9% corporate tax on profits over AED 375,000 (from June 2023), 5% VAT, and customs duties.

Freezone: Many zones offer 0% corporate tax on qualifying income, 5% VAT (some zones offer 0%), and customs exemptions within the zone. Duties apply for trading with the mainland.

Benefits of Mainland Company Setup

Benefits of Freezone Company Setup

How to Choose: Key Considerations

Consideration	Mainland Company	Freezone Company
Target Market	UAE local market + international	International, freezone
Ownership Preference	100% foreign (most sectors)	100% foreign
Budget	Higher	Lower
Office Needs	Physical office mandatory	Flexible
Staff Size	Unlimited visas	Limited visas
Sector	Broader activity options	Sector-specific zones
Government Contracts	Eligible	Not eligible
Compliance Burden	Higher (audit, approvals)	Lower

Frequently Asked Questions

Can a freezone company sell in the UAE mainland?

No, unless it appoints a local distributor or opens a mainland branch registered with DED and the Ministry of Economy.

Is 100% foreign ownership possible in the mainland?

Yes, for most sectors since 2021, but some strategic sectors still require a local partner.

Which is cheaper to set up: mainland or freezone?

Freezone setups are generally more cost-effective, especially for startups and small businesses.

Do both require annual audits?

Mainland companies must conduct annual audits; freezone companies' requirements vary by zone.

Can I have multiple activities on one license?

Yes, both allow multiple activities, but extra fees may apply for additional categories.

Conclusion

The decision between setting up a mainland or freezone company in the UAE depends on your business goals, budget, target market, and sector. Mainland companies offer unrestricted access to the UAE market, government contracts, and unlimited visas, but come with higher costs and compliance obligations. Freezone companies deliver full foreign ownership, tax incentives, and streamlined setup, but are limited in trading directly with the UAE mainland.

Carefully assess your business needs against the key differences outlined in this guide. Consider factors like:

• Your target customer base (UAE local vs international)
• Required number of employee visas
• Need for physical office space
• Desire to bid for government contracts
• Tax optimization strategies
• Industry-specific requirements

For many businesses, the ideal solution might involve a combination of both - a freezone entity for international operations and a mainland presence for local market access. Our experts at One Desk Solution can help you design the optimal structure for your specific needs.

Remember that regulations and incentives evolve, so it's crucial to consult with professionals who stay current with UAE business laws. Whether you choose mainland or freezone, the UAE offers exceptional opportunities for business growth and success in 2025 and beyond.