Guide · updated 16.10.2026 · 10 min read · Lucent Legal team

Free zone vs mainland: which UAE company to set up

Three questions decide between a free zone and the mainland: who you sell to, how many people you will put on visas, and whether you count on the 0% corporate tax rate. The licence price comes fourth. By year two, the registration gap disappears next to rent, visas and accounting. Below is each fork and the usual answer.

Where your clients are: the main question

You register a mainland company with the emirate's economic department; in Dubai that means DET through the Invest in Dubai portal. It can sell to anyone in the country: open a shop, sign contracts with local companies, bid in government tenders.

You register a free zone company with the authority of a specific zone (DMCC, IFZA, Meydan, RAKEZ, SPC and others). Its legal territory is the zone itself plus markets outside the UAE. Until recently, a sale to a mainland client had to go through a local distributor or agent.

Dubai added a third route in March 2025. Executive Council Resolution No. 11 of 2025 lets free zone companies operate in mainland Dubai if they hold one of these DET documents:

• a mainland branch licence;
• a branch licence with the head office staying in the free zone;
• a temporary permit for specific activities, valid up to six months.

Branch licences run for one year and renew. You need consent from the zone authority and, for regulated activities, from the sector regulator. You keep separate accounts for mainland operations. The rule covers Dubai only: other emirates are outside it, and DIFC financial firms are excluded.

The practical split:

Tax: where you pay 0% and where 9%

Corporate tax works the same in both: 0% on taxable profit up to AED 375,000 a year, 9% above it. Every legal entity must register with the Federal Tax Authority (FTA), free zone companies included.

A free zone gives you a shot at 0% on all profit if you hold Qualifying Free Zone Person (QFZP) status. The conditions:

• real presence in the zone: office, staff and costs that match the activity;
• income from qualifying activities (a ministerial decision lists them);
• non-qualifying income no higher than the lower of 5% of total revenue or AED 5 million;
• audited financial statements;
• the company has not opted into the regular 9% regime.

Break one condition and you lose the status for that year and the next four. Sales to individuals and to most mainland companies do not count as qualifying income. So a zone company that sells into Dubai usually pays 9% on profit above AED 375,000, the same as a mainland company.

Small businesses with revenue up to AED 3 million get the same relief in both forms: Small Business Relief until 31 December 2029. A QFZP cannot claim it, because the relief and the status exclude each other. Details: Small Business Relief until 2029 and 9% corporate tax.

5% VAT does not depend on the form: you must register once taxable supplies pass AED 375,000 over 12 months.

Visas and office

The authority that issues the licence also sets the visa quota, and it counts from the office. Mainland Dubai requires a lease registered in Ejari. A free zone requires premises or a workspace under a contract with the zone.

A flexi-desk or virtual office costs less but carries a small quota, usually one or two visas; the zone's package sets the exact number. If you plan a team, price the office from day one. Switching packages mid-year costs more than choosing right at the start.

An investor or partner residence visa through your company works the same way in both forms. See investor visa through your own company.

Money: entry cost and year two

A free zone is cheaper to enter. Some zones start a package with a licence and one visa at a few thousand dirhams; the comparison by official price lists is in cheapest free zone in the UAE, and a table of 14 zones with office type, QFZP conditions and Dubai mainland access is in UAE free zones compared.

The mainland costs more because of the Ejari lease and DET fees, which depend on the activity. DET runs an official cost calculator on its portal.

For year two, compare full annual budgets, not licence prices: renewal, rent, visas, health insurance, accounting and audit. A QFZP must file audited accounts every year. A small mainland company on Small Business Relief may not have that cost at all.

Bank

Banks do not care whether you picked a zone or the mainland. They look at the beneficial owners, the source of funds, counterparties and real activity. A company with no office or staff in the UAE, and with clients and payments in higher-risk countries, struggles to open an account in either form. More in UAE corporate bank account.

If you chose wrong

You can fix it, but it takes two procedures:

• open a new company in the right jurisdiction;
• close the old one with liquidation, visa cancellation and tax deregistration.

Moving a company from one zone to another (continuation) exists only in some zones and needs both zones to agree. Since October 2025 the law also allows a move between the mainland and a free zone that keeps the legal entity, but registrars are only starting to offer it: moving a company between mainland and free zone. In Dubai, adding a branch or a DET permit is sometimes simpler. How to close the company you no longer need: closing a business and liquidating a company in the UAE.

Common mistakes

• Picking a zone by package price, then finding out the main client sits on the mainland.
• Assuming a free zone always means 0% tax, and skipping the audit and presence evidence a QFZP needs.
• Buying a flexi-desk package for a team of five.
• Opening the company before talking to a bank, and learning about account problems after paying for the licence.

Topic: Doing Business in the UAE

Get a lawyer's help: Company formation in the UAE

This material is for information only and is not legal advice. UAE law changes — a lawyer will assess how it applies to your situation.