What is a mainland licence?
A mainland licence — issued by the Department of Economic Development (DED) in each emirate — gives you the right to operate anywhere in the UAE and to bid for government contracts. Until 2020, most professional activities required a UAE national as a 51% partner, but Federal Decree-Law No. 26 of 2020 removed that requirement for most commercial activities. Today, a foreign investor can own 100% of a mainland company in most sectors without a local sponsor.
The exceptions are a list of "strategic activities" — defence, oil and gas services, utilities, certain professional services — that still require a UAE national partner or agent. Check the updated DED list in your emirate before assuming full foreign ownership is available for your activity.
A mainland DED licence is the right structural choice if you intend to: sell goods or services directly to UAE residents or businesses without restriction, work on UAE government or semi-government contracts, open retail outlets or restaurants anywhere in the country, or import and distribute goods to the local UAE market without a local distributor intermediary.
What is a free zone licence?
A free zone is a designated economic area — there are more than 50 in the UAE — where foreign investors have always been permitted to own 100% of their company. Each free zone is governed by its own regulatory authority and targets specific industries: DIFC for financial services, Dubai Media City for media, JAFZA for logistics and trade, Abu Dhabi Global Market for wealth management.
Free zones offer a package of benefits that vary by zone but typically include: full foreign ownership (100% always, no exceptions), no import or export duties within the zone, dedicated visa quotas for employees, streamlined incorporation (often in a few days), and in many cases zero corporate tax on qualifying income under the QFZP regime.
The critical restriction: a free zone company cannot sell goods or services directly into the UAE mainland market without going through a licensed UAE mainland distributor. If your customer base is entirely international — you export, provide cross-border services, or operate an e-commerce business for a global audience — this restriction does not hurt you. If your customer is a UAE consumer or local business, it is a real constraint.
Corporate tax treatment in 2026
The UAE introduced a federal corporate tax of 9% on taxable profits above AED 375,000, effective for financial years beginning on or after 1 June 2023 (Federal Decree-Law No. 47 of 2022). This applies to mainland companies and to free zone companies that do not qualify for the preferential regime.
Free zone companies can qualify for the Qualifying Free Zone Person (QFZP) regime, which taxes qualifying income at 0%. To qualify, the company must: maintain adequate substance in the free zone (real office, employees, genuine activity), earn income that counts as 'qualifying income' (broadly: export sales, approved intra-group transactions, and qualifying financial services), not elect out of the QFZP regime, and file annual corporate tax returns. Non-qualifying income — including most sales into the UAE mainland market — is still taxed at 9%.
For companies with mixed income (some qualifying, some non-qualifying), the 9% rate applies only to the non-qualifying portion. The practical result: a free zone IT company exporting SaaS services to international clients pays 0% on those revenues; the same company's UAE mainland sales are taxed at 9%. Careful activity planning can optimise this split. Use the Calcureal UAE Corporate Tax Calculator to model your effective rate under different revenue mixes.
VAT obligations
VAT registration is mandatory when taxable supplies and imports exceed AED 375,000 in any 12-month period, and voluntary above AED 187,500. This threshold applies equally to mainland and free zone companies — the legal form does not create a VAT exemption.
Where free zones create a meaningful difference is in 'designated zones' — specific logistics and industrial free zones (JAFZA, Khalifa Industrial Zone Abu Dhabi, etc.) declared by the UAE Federal Tax Authority. Transfers of goods between businesses within a designated zone are treated as outside the scope of UAE VAT, which simplifies intra-zone B2B trading for manufacturing and logistics businesses. Transfers of goods out of a designated zone into the UAE mainland are treated as imports subject to VAT.
For service businesses — consultancies, tech companies, digital services — the designated zone VAT treatment is largely irrelevant because they are trading services, not physical goods. VAT on services follows standard UAE rules regardless of where the supplier is licensed.
Visa quotas and office requirements
Both mainland and free zone licences grant visa quotas tied to your office space and licence type. Mainland companies typically earn two to five visas per desk in a serviced office, and more in a larger physical office based on square footage (approximately one visa per 9 square metres of workspace under most DED guidelines). Free zones set their own quota schedules — some offer visa packages of three to six visas with a flexi-desk, others require larger offices for higher headcounts.
If you need to sponsor many employees quickly, compare the actual visa quotas offered by the specific free zone you are considering, not a generic figure. RAKEZ, for example, issues up to 6 visas per flexi-desk. JAFZA and TECOM typically require larger office commitments for higher visa counts.
Mainland offices must be a physical commercial premise (not a residential address) registered with the municipality. Most free zones offer flexi-desks and co-working memberships as a valid registered address for small businesses, which is why free zone setup costs are often lower — you do not need to rent a dedicated office from day one.
Bank account practicality
Opening a UAE corporate bank account is the step most new businesses underestimate. UAE banks apply significant KYC (Know Your Customer) scrutiny and reject a material share of new corporate account applications, particularly for free zone companies with no UAE-based customers, no physical employees, and offshore-focused revenue.
Mainland companies generally find it easier to open accounts at UAE retail banks (Emirates NBD, ADCB, FAB, Mashreq) because they have a visible local customer base and physical presence. Free zone companies — particularly those in financial, trading, or consulting activities with international clients — face more friction. Banks like CBD, RAKBANK, and Wio have historically been more receptive to free zone applicants, but policies change.
If banking access is a priority, choosing a free zone with a dedicated banking relationship (DIFC works closely with several international banks within the centre) or a mainland structure reduces risk. Budget 4 to 8 weeks for the account opening process regardless of structure, and prepare a business plan, customer contracts, proof of activity, and shareholder documentation.
Repatriation of profits
The UAE imposes no restrictions on repatriation of profits or capital for either mainland or free zone companies. You can send dividends, director salaries, or capital repayments abroad without central bank approval or withholding tax. This applies to both DED-licensed mainland companies and free zone entities.
This is a significant structural advantage of the UAE compared with many other jurisdictions. There is no withholding tax on dividends paid to foreign shareholders, no capital gains tax, and no controls on moving money out of the country. The practical friction is banking: once the funds are in your UAE corporate account, international wire transfers require SWIFT details and may be subject to correspondent bank fees, but there are no legal restrictions on the transfer itself.
For free zone companies in designated zones, there is also no customs duty on goods re-exported after processing — a benefit specifically relevant to traders and manufacturers using the UAE as a logistics hub between Asia, Africa, and Europe.
Decision matrix: 10 criteria compared
Use this matrix as a decision-support tool, not a definitive answer. Your specific activity, customer base, and visa needs will override any general rule. For personalised advice on structure, consult a UAE business setup specialist or a licensed corporate services provider registered with the relevant authority.
The single most important criterion: who are your customers? If they are UAE mainland businesses or residents, mainland is almost always the right answer. If they are international, free zone is often the more efficient structure for tax and setup cost.
| Criterion | Mainland (DED) | Free Zone |
|---|---|---|
| Foreign ownership | 100% most activities (since 2020) | 100% always |
| UAE mainland trading | Unrestricted | Requires mainland distributor |
| Government contracts | Eligible | Generally excluded |
| Corporate tax (standard) | 9% on profits > AED 375k | 9% on non-qualifying income |
| Corporate tax (qualifying income) | No special rate | 0% QFZP qualifying income |
| VAT obligations | Standard UAE VAT rules | Same, plus designated zone rules for goods |
| Setup cost (typical) | AED 10,000–25,000+ | AED 3,500–20,000 (zone-dependent) |
| Office requirement | Physical commercial address | Flexi-desk accepted (most zones) |
| Visa quota | Moderate (tied to office size) | Varies: 3–6 per flexi-desk typical |
| Bank account ease | Generally easier | More KYC scrutiny in some banks |
Which structure should you choose?
Choose a mainland licence if: your primary customers are in the UAE (retail, hospitality, local B2B services), you want to bid for government contracts, you intend to import and distribute goods to the local market, or you expect the UAE national partner restriction to affect your specific activity (verify the updated DED list).
Choose a free zone licence if: your revenue is primarily from international clients or exports, your business is digital and location-independent, you want the lowest possible setup cost and a fast incorporation process, or you want to test the UAE market before committing to a larger physical footprint.
A third option — running both structures simultaneously — is legally permitted. Some businesses establish a free zone entity for international operations and a separate mainland entity for UAE-market sales. This adds administrative overhead (two sets of accounts, two licences, two corporate tax registrations) but is a legitimate structure for businesses with genuinely bifurcated customer bases.