UAE Mainland vs Free Zone Company: Scope and Cost Compared

This article is part of Zagdim’s wiki series on setting up a company in the United Arab Emirates (UAE). It sets out how a mainland company and a free zone company differ in business scope, ownership, office requirements, and setup and running costs, for anyone considering opening a company in the UAE, including someone who is not yet based there.

First, two terms:

• Mainland company: a company that is not based in a free zone, set up according to the UAE government’s mainland business setup guidance.
• Free zone company: a company registered in one of the free zones; each free zone has its own regulatory authority and its own rules.

Before choosing a company form, you need to settle on the business activity first. The UAE government’s mainland business setup guidance explains that the activity you intend to carry out is what determines your legal form and your commercial, industrial, or professional licence, and the legal form has to match the activity. The legal form is the company’s legal type; the licence is the government’s permission for the specific activities the company may carry out. For a fuller introduction to company forms and substance requirements, see Zagdim’s wiki article “Before You Set Up a Company in the UAE: Understanding Mainland, Free Zone, Offshore, and Substance Requirements.”

**Example used throughout this article:** An entrepreneur who is not yet based in the UAE plans to set up a company in Dubai, mainly for trading goods, with some consulting services on the side. The sections below apply the rules to this example. It is illustrative only, not advice for an individual case.

Where Do Business Scopes Differ? Can a Free Zone Company Operate Outside Its Zone?

In Dubai, a free zone company needs a separate licence or permit to operate outside its free zone but still within Dubai; a free zone licence alone does not cover activity outside the zone.

Dubai’s government rules state that a free zone establishment that intends to carry out activity outside its free zone, within the Emirate of Dubai, needs to obtain one of the licences or permits set out in the rules. Also note:

• Operating in an emirate other than Dubai: this still needs a licence and permit from that emirate’s own regulatory authority.
• Exception: this requirement does not apply to financial institutions licensed by the Dubai International Financial Centre (DIFC).

There are three routes for a Dubai free zone company to operate outside its zone:

• Both licences are only granted once the specified conditions are met.
• The temporary permit is limited to the activities listed separately in the rules; not every activity qualifies.
• The fees above are the statutory fees for specific items; they are not the total cost of forming the company, rent, visas, and a full year of operations.

If a free zone company intends to operate outside its free zone in Dubai, it needs to:

• Apply through the Dubai Department of Economy and Tourism (DET)
• Obtain prior consent from its original free zone authority
• Where required, obtain approval from the regulator for that activity (the government body responsible for that industry)
• Keep its original free zone licence valid
• When applying for a branch licence, set up that branch within Dubai
• Pay the required fees and meet any other conditions set by the Director General’s decision (both routes)

A company approved to operate outside its free zone also needs to comply with the relevant federal and local activity regulations, and keep separate financial records for the outside-zone activity from its free-zone business.

**Example:** In this case, if the company is set up in a Dubai free zone and later wants to take on clients outside the free zone but still within Dubai, it would need one of the routes in the table above. Doing business in another emirate would also need a licence and permit from that emirate’s own authority.

Ownership and Company Structure: Can Foreigners Own 100%?

The answer: outside “activities of strategic impact,” a foreign investor can own 100%; in a free zone, it depends on which company forms that particular zone allows.

The UAE’s Ministry of Economy and Tourism (MOET) explains that, under a UAE Cabinet resolution, every economic activity is open to 100% foreign ownership except activities of strategic impact. Activities of strategic impact are the industries where the government separately controls the share of foreign ownership: of the 7 categories listed, 6 require the relevant authority to approve the ownership share, board participation, and other conditions.

The UAE government’s free zone setup guidance explains that company types differ by the number of shareholders, and by whether the shareholders are natural persons (individuals) or legal persons (companies or institutions). Not every free zone registers every type, so you need to check with each free zone’s own authority on which company forms it allows.

Taking the Jebel Ali Free Zone (JAFZA) as an example, here is how a Free Zone Establishment (FZE) differs from a Free Zone Company (FZCO):

• Legal personality separate from shareholders: the company itself is legally a “person,” separate from its shareholders.
• Liability limited to paid-up capital: the company’s liability is capped at the capital its shareholders have actually paid in.

These are JAFZA’s own rules; other free zones need to be checked with their own authorities.

**Example:** In this case, if the owner is funding the company alone, an FZE in JAFZA could fit; with a co-investor, an FZCO would be the structure to look at.

Physical Address and Office Requirements: Do You Need to Rent an Office?

The answer: a mainland company needs a physical address, but that does not mean every company has to rent its own standalone office; office requirements for a free zone company depend on that zone’s own rules.

Under the UAE government’s setup guidance, a mainland company needs to:

• Have a physical address while operating
• Have premises and a location that meet the requirements of that emirate’s Department of Economic Development and local municipal land-use planning
• Provide an office and warehouse lease contract; some emirates require the contract to be attested
• In Dubai, register the contract in the lease registration system (Ejari)

Taking the terms of the Dubai Multi Commodities Centre (DMCC) Basic Biz package as an example, flexi desks come in two types:

• To exceed the Special plan’s allocation, you need to upgrade to a higher-allocation facilities plan; the upgrade is charged at the full annual rate, not pro-rated for the remaining term.
• A visa allocation is only a quota; it does not guarantee a visa will be approved.
• The figures above are specific to the DMCC Basic Biz terms; they do not represent every free zone or every DMCC office plan.

If the plan is manufacturing, taking JAFZA as an example, the core requirements for an industrial licence include setting up production facilities and a warehouse within the free zone, and licensed companies are also subject to regular audits by the Health, Safety and Environment (HSE) authority.

Cost Comparison: What Do Setup and Renewal Fees Look Like?

The answer: there is no single total figure that lets you compare the two directly; the following are individual line items from DMCC’s and JAFZA’s own official pages, and they cannot be added up into a full year’s operating cost.

• The DMCC figures are a snapshot of its fee schedule, and the JAFZA figure a snapshot of its licence page, both as of November 2, 2026.
• DMCC’s fee schedule also notes that each item is subject to a AED 20 knowledge and innovation fee, that services not listed need to be asked about separately, and that fees can change without prior notice.
• Treat each of these figures as a line item; do not add them (plus the AED 20 fee) together into a quote.

Dubai’s business licence term, under Dubai’s 2011 Economic Activities Law:

• Valid for 1 year, renewable for the same period
• At the business’s request, and with approval coordinated between the Department of Economic Development and the relevant authority, it can be extended beyond 1 year, up to a maximum of 4 years
• Renewal needs to happen within the final month before the licence expires

Tax Obligations: How Different Are Corporate Tax, VAT, and Audit Requirements?

The answer: a free zone company does not get a 0% corporate tax rate simply by registering; only a Qualifying Free Zone Person (QFZP) that meets the conditions has its qualifying income taxed at 0%. A Qualifying Free Zone Person is a free zone company (legally, a “free zone person”) that meets a set of statutory conditions.

General Corporate Tax Structure

Under a UAE Cabinet decision, a general taxable person’s Taxable Income for each tax period is taxed as follows:

• Taxable Income: income calculated as taxable under the tax law. The threshold looks at taxable income, not revenue.
• Tax period: the period over which corporate tax is calculated.
• Carrying on more than one line of business in the same period for the same taxable person does not raise the 0% threshold.

A resident taxable person can elect for Small Business Relief:

• Condition: revenue in the relevant tax period and every prior tax period must not exceed AED 3 million; exceeding it in any relevant or prior period makes the business ineligible going forward.
• Revenue is calculated under accounting standards accepted in the UAE.
• A 2026 amendment changed the period the threshold applies to, to tax periods starting on or after June 1, 2023 and ending on or before December 31, 2029.
• This relief has to be elected by the taxable person; it is not automatic just because revenue is low.
• Exception: members of a defined multinational enterprise group, and a QFZP, cannot elect this relief.

Conditions for the Free Zone 0% Rate

Under the UAE’s corporate tax law, a QFZP needs to:

• Maintain adequate substance in the UAE
• Derive qualifying income
• Not have elected to be subject to the regular tax regime
• Comply with the relevant provisions specified by the corporate tax law
• Meet any other conditions set by the Minister

Once these are met, a QFZP’s qualifying income is taxed at 0%; taxable income from non-qualifying income is taxed at 9%.

“Adequate substance” means the company genuinely operates in the location. The Cabinet decision specifies:

• Core income-generating activities are carried out in the free zone or a designated zone, as required for that activity
• The company has adequate assets, enough qualified full-time employees, and operating expenditure proportionate to the scale of each activity
• General activities can be outsourced to a person in the relevant free zone or designated zone, provided there is adequate supervision
• Exception: core activities related to qualifying intellectual property can be outsourced to another person onshore, or to an unrelated party offshore (a party with no connection to the company), again subject to adequate supervision

A QFZP also needs to meet a de minimis threshold, meaning non-qualifying revenue cannot be too large: non-qualifying revenue must not exceed the lower of 5% of total revenue for the relevant tax period, or AED 5 million. When calculating this, both non-qualifying revenue and total revenue exclude:

• Revenue from free zone commercial property transactions with a non-free-zone person
• Revenue from free zone non-commercial property transactions with any person
• Revenue attributable to a permanent establishment onshore or offshore (a fixed place of business in a given location)
• Revenue from owning or exploiting intellectual property; except for the revenue the Cabinet decision defines as related to qualifying income, which is not excluded

In addition, a QFZP needs to meet the de minimis threshold and prepare audited financial statements. If it fails to meet the relevant statutory conditions at any point in a tax period, it loses QFZP status from that period and for the following 4 tax periods.

**Example:** In this case, for the free zone company’s income to qualify for the 0% rate, it would first need to meet the QFZP conditions above; registering in a free zone alone is not enough.

Audited Financial Statements and Agreed-Upon-Procedures Reports

• For tax periods starting on or after January 1, 2025, a QFZP needs to prepare and keep audited financial statements; this condition carries no AED 50 million revenue threshold.
• A QFZP carrying out the qualifying activity of “distributing goods or materials in or from a designated zone” also needs to obtain an agreed-upon-procedures report from an independent external auditor, per a decision of the Federal Tax Authority (FTA), for tax periods starting on or after January 1, 2026 (a report an auditor issues after checking agreed items).

This report needs to show that:

• The customer acquired the goods for resale, or for processing and onward sale
• Where the QFZP itself imported the goods, they were imported through a designated zone

The deadline for submission is 30 days after the corporate tax filing deadline for the relevant tax period, or by whatever date the FTA otherwise sets. An annual financial statement audit cannot substitute for this report. If it is not submitted, the relevant conditions set in the two ministerial decisions are both treated as not met.

Value Added Tax (VAT)

Value Added Tax (VAT) is a tax charged on the sale of goods or services. The FTA’s VAT registration page explains:

• A business needs to register for VAT once its taxable supplies and imports over the past 12 months exceed AED 375,000, or it expects to exceed that amount in the next 30 days.
• This mandatory threshold does not apply to foreign businesses.
• A non-resident business that makes taxable supplies in the UAE generally still needs to register, even if the value of those supplies does not reach the general registration threshold; the exception is where another party within the UAE is responsible for accounting for VAT on those supplies.

A QFZP’s 0% corporate tax and a VAT “designated zone” are different regimes, and not every free zone is a VAT designated zone. Under the FTA’s publicly available September 2026 VAT Executive Regulation:

• A designated zone has to be specified by the Cabinet and meet the conditions listed in the regulation.
• A person established, registered, or resident in a designated zone is treated, for VAT purposes, as resident in the UAE.
• Where the place of supply of a service (the location the tax law treats a transaction as occurring in) is in a designated zone, it is generally treated as being onshore.

The regulation has one further exception: for transport or delivery services directly connected to goods whose place of supply the regulation treats as outside the state, the place of supply is treated as outside the state only if all four of the following conditions are met at the same time:

• The service and the goods are provided by the same supplier
• The supplier of the goods is a non-resident not registered for VAT
• The goods are sold through a defined electronic sales platform
• The platform owner is not the supplier of the goods

In other words, being in a free zone or a designated zone is not, by itself, grounds to claim an entire business is exempt from VAT.

Domestic Minimum Top-up Tax for Large International Groups

The UAE’s Ministry of Finance explains that a multinational enterprise group operating in the UAE becomes subject to the Domestic Minimum Top-up Tax (DMTT) from financial years starting on or after January 1, 2025, if its consolidated global revenue reached at least €750 million in at least 2 of the 4 financial years before the applicable year. This regime implements the Pillar Two 15% global minimum effective tax rate framework; 15% is not the statutory rate for every UAE company, and it does not mean every such group owes a top-up amount. The tax position of these groups cannot be judged using the regular 0%/9% corporate tax rate or the free zone 0% rate alone.

Renewal and Ongoing Obligations: What Happens Every Year After Setup?

Once a company is set up, there are fixed obligations every year. The answer: renewal is not just paying a fee; it also means continuing to meet the rules and submitting the required documents. The following uses DMCC and JAFZA as examples.

DMCC’s licensing rules require renewal before the expiry date shown on the licence, and a company may not operate in or from the zone without a valid licence. Unless the Registrar (the free zone official responsible for issuing and managing licences) specifies otherwise, renewal requires:

• Continuing to comply with the rules and the relevant valid licences, permits, visas, and approvals
• Submitting audited financial statements and reports as legally required (except where exempted by applicable law and the rules)
• Demonstrating that there are no relevant overdue amounts outstanding
• Paying the renewal fee and any other applicable fees
• Providing any other information the Registrar reasonably requests

If renewal does not happen on time, the Registrar has discretion to grant a limited grace period, which is not granted automatically. If renewal still has not happened by the end of any approved grace period, the licence may be suspended or terminated, and the Registrar may take other measures it considers necessary.

JAFZA’s rules are:

• A customer needs a valid lease and a valid licence to operate within the zone, and needs to renew both the lease and the licence on JAFZA’s set schedule.
• Exception: users of workstations within business centers or incubators may be subject to different requirements.
• An entity registered and licensed with another UAE authority needs JAFZA’s permission to lease premises within the zone.

For a fuller introduction to accounting, corporate tax, VAT, and renewal obligations, see Zagdim’s wiki article “Setting Up Is Just the Start: UAE Accounting, Corporate Tax, VAT, and Renewal Obligations.”

Frequently Asked Questions

Does initial approval mean a business can start operating? No. In the mainland setup process, initial approval only means the government does not object to the business being set up and allows the applicant to proceed with the next steps; it does not grant permission to operate or carry out that business activity.

At DMCC, can a single licence cover both trading and services? DMCC’s fee schedule states that adding a different licence type’s services, trading, or industrial activities, regardless of the activity code, requires a new licence, listed at an annual fee of AED 20,265 (special and industrial licences are priced separately, and the AED 20 knowledge and innovation fee applies generally on top). Certain activities, such as a single family office, real estate, and the Dubai Gold and Commodities Exchange (DGCX), need to be carried out on their own and cannot be combined with other activities even under the same type of licence.

Is a free zone company’s corporate tax always 0%? No. Only a QFZP’s qualifying income is taxed at 0%; taxable income from non-qualifying income is taxed at 9%. If the statutory conditions are not met, QFZP status is lost from that tax period and for the following 4 tax periods.

Can a company apply for employee residence visas as soon as it is set up? Only once certain prerequisites are met. Taking DMCC as an example, a company needs a valid licence and an Establishment Card before it can apply for a new employee’s residence visa; any sanctions already placed on the company’s account also need to be cleared before applying.

Key Terms

• Mainland: a company set up according to the UAE government’s mainland business setup guidance, choosing its legal form and commercial, industrial, or professional licence based on its intended business activity.
• Free Zone: areas each with their own regulatory authority; the company forms a given free zone allows differ, so check with that zone’s own authority.
• Qualifying Free Zone Person (QFZP): a free zone person that meets the conditions set in the corporate tax law; its qualifying income is taxed at a 0% corporate tax rate.
• Value Added Tax (VAT): a tax a business must register for once its taxable supplies and imports over the past 12 months exceed AED 375,000; this mandatory threshold does not apply to foreign businesses.

About This Data

Data was checked as of November 2, 2026. The mainland-versus-free-zone comparison in this article is compiled item by item from official documents of the UAE federal government, the Dubai government, the Federal Tax Authority, DMCC, and JAFZA; none of these authorities publishes a direct side-by-side comparison of the two.

The DMCC and JAFZA figures are a snapshot of their fee schedule and licence page on the day they were checked; DMCC’s fee schedule states that fees can change without prior notice. Whether the AED 20 knowledge and innovation fee is already included in each figure is not stated directly in the fee schedule. This article does not list mainland company setup and licence fee amounts, or the fee for a branch licence within Dubai.

Sources for the rules cited in this article:

• A free zone establishment operating outside its zone in Dubai: Dubai’s Executive Council Resolution No. 11 of 2025, Articles 2 to 5, 7, and 12; the list of temporary-permit activities is in Article 9.
• 100% foreign ownership: Cabinet Decision No. 55 of 2021.
• Dubai licence term: Dubai Law No. 13 of 2011 on Economic Activities, Article 8.
• General corporate tax rate: Cabinet Decision No. 116 of 2022.
• Small Business Relief: Ministerial Decision No. 73 of 2023, and the 2026 amendment, Ministerial Decision No. 131 of 2026.
• QFZP conditions and tax rates: Federal Decree-Law No. 47 of 2022 (the Corporate Tax Law), Articles 3 and 18; the provisions to comply with are Articles 34 and 55.
• Adequate substance: Cabinet Decision No. 100 of 2023, Article 8.
• De minimis threshold: Ministerial Decision No. 229 of 2025, Article 3; the excluded items are calculated under Cabinet Decision No. 100 of 2023, Article 4(3); the intellectual-property exclusion’s own exception refers to the qualifying-income-related revenue in Article 7(1) of the same Cabinet decision.
• Losing QFZP status: Ministerial Decision No. 229 of 2025, Article 5.
• Audited financial statements: Ministerial Decision No. 84 of 2025.
• Agreed-upon-procedures report: FTA Decision No. 6 of 2026; the provision treating non-submission as non-compliance is Ministerial Decision No. 84 of 2025, Article 2(3), together with the conditions set in Ministerial Decision No. 229 of 2025, Article 2(1)(l).
• VAT designated zones: the September 2026 VAT Executive Regulation, Article 51; the transport-and-delivery exception is in clause 7, and the goods it refers to are defined in clause 5(b)(c).
• DMCC grace period, suspension, and termination: DMCC Licensing Rules, Article 3.3.4 and Article 5.
• JAFZA operation and renewal: JAFZA Rules 2023, Articles 6.2 to 6.3.

Dubai Law No. 13 of 2011 on Economic Activities is compiled from its 2011 text; subsequent amendments have not been fully cross-checked. Federal Decree-Law No. 47 of 2022 is cited from the FTA’s published unofficial English translation; FTA Decision No. 6 of 2026’s English text is also marked as an unofficial translation, with the legal Arabic text as the authoritative version.

This article does not itemize the list of temporary-permit activities in Article 9 of Dubai’s Executive Council Resolution No. 11 of 2025, or the other conditions set by the Director General’s decision. The DMTT’s entity exclusions, safe harbors, and calculation method follow Cabinet Decision No. 142 of 2024 and subsequent rules.

Have a question about this guide? Leave a comment below, or ask Zagdim directly.

Sources

• UAE Government Portal — Steps to start a business on the mainland | UAE Ministry of Economy and Tourism — Promising Sectors — Strategic Impact Activities | UAE Government Portal — Starting a business in a free zone | JAFZA — Company formation | Dubai Supreme Legislation Committee — Executive Council Resolution No. 11 of 2025 | DMCC — Schedule of Charges | DMCC — Basic Biz Terms and Conditions | JAFZA — Business licence in Dubai with Jafza | UAE Ministry of Finance — Ministerial Decision No. 84 of 2025 | UAE Cabinet
• Ministry of Finance — Cabinet Decision No. 116 of 2022 | FTA
• UAE Ministry of Finance — Ministerial Decision No. 73 of 2023; Ministerial Decision No. 131 of 2026 | FTA — Registration For VAT | FTA
• UAE Federal Government — Federal Decree-Law No. 47 of 2022 | FTA
• UAE Cabinet — Cabinet Decision No. 100 of 2023 | UAE Ministry of Finance — Ministerial Decision No. 229 of 2025 | DMCC — Licensing Rules Version 3 | JAFZA — Jafza Rules 2023 | Dubai Supreme Legislation Committee — Law No. 13 of 2011 | FTA — Value Added Tax (VAT) Registration | FTA — Decision No. 6 of 2026 | UAE Ministry of Finance — Ministry of Finance Announces Amendments to the Corporate Tax Law | FTA — VAT Executive Regulation and amendments (September 2026 version) | DMCC — New Employee Residence Visa Guidelines

Important Disclaimer

This article is general information and does not constitute tax or legal advice for an individual case. Data was checked as of November 2, 2026. Rules in the UAE and other jurisdictions may be updated; follow the current guidance published by the relevant authority in each case, and consult a qualified professional for your own situation.