Mainland VS Free Zone

Mainland

Free Zone

• Corporate Tax: since June 2023, a 9% rate applies to taxable income above AED 375,000 (approx. USD 100,000).
• VAT: mandatory VAT registration; standard rate 5% on domestic transactions and imports.
• Withholding tax: generally not applied, except in specific cases under international treaties.
• Tax compliance: annual corporate tax returns must be filed with the Federal Tax Authority (FTA).

Free Zone entities benefit from a preferential tax regime, subject to operational limitations:
• Corporate Tax: potential exemption provided certain conditions are met (e.g., qualifying income primarily outside the Mainland, or activities confined to the Free Zone/international trade).
• VAT: generally out of scope; however, transactions with the Mainland typically trigger mandatory VAT registration.
• Customs duties: exemption on goods imported into the Free Zone, so long as they remain within the zone.

Mainland

Free Zone

Key obligations and characteristics:
• Ownership: up to 100% foreign ownership permitted for many commercial activities; certain regulated activities may still require a local partner/sponsor.
• Legal forms: LLC (Limited Liability Company) or Branch of a foreign company (a Branch must appoint a National Service Agent).
• Operating licences: commercial licence issued by the Department of Economic Development (DED).
• Employment contracts: UAE Labour Law applies directly; contracts must be registered with the Ministry of Labour.

Free Zone entities operate under an autonomous, streamlined framework:
• Ownership: 100% foreign ownership generally permitted without sectoral restrictions.
• Legal forms: Free Zone Company (FZCO), Free Zone Establishment (FZE – single shareholder), or Branch.
• Licences: issued by the relevant Free Zone Authority, with simplified requirements and faster procedures.
• Employment contracts: governed by the Free Zone’s own regulations, typically aligned with UAE Labour Law principles.

Mainland

Free Zone

Mainland companies enjoy full access to the domestic UAE market:
• Market access: free to trade, distribute, and sell directly across the UAE without intermediaries.
• Commercial premises: freedom to establish offices/retail points anywhere in the UAE.
• Customs operations: standard customs duties (generally 5%) on imports from abroad.

Advantages with some constraints:
• Market limitations: no direct sales into the Mainland without a duly registered local agent/distributor; direct operations require opening a Mainland branch or entity.
• Physical presence: activities must be located within the chosen Free Zone.
• Facilitated customs: full duty exemption for goods imported into—and re-exported from—the Free Zone without entering the Mainland.

Mainland

Free Zone

• Bookkeeping: mandatory under IFRS.
• Audit: generally required, especially for large companies or regulated activities.
• Financial statements: no public filing requirement, but certified accounts are often requested by tax and banking authorities.

• Bookkeeping: IFRS-based, typically with more streamlined procedures than Mainland.
• Audit: annual audit is required in most Free Zones by independent auditors.
• Annual accounts: usually must be filed with the relevant Free Zone Authority.

Mainland

Free Zone

• Visas & work permits: administered under the supervision of the Ministry of Labour.
• Employment framework: standardised under federal UAE Labour Law with strong worker-rights protections.

• Visas & work permits: issued directly by Free Zone Authorities—generally faster and simpler.
• Employment framework: governed by the specific Free Zone’s rules, often offering greater contractual flexibility than the Mainland.