Free zone or mainland is one question about your customer, and the ownership rule everybody still cites was repealed in 2020

Both of these are UAE companies, incorporated under UAE law, owned by whoever owns them, paying the same federal taxes. The choice between them is not a choice between two tax positions or two ownership regimes. It is a choice of which authority licenses you, and that single choice decides which customers you may invoice directly.

That is the whole decision, and it can be settled in an afternoon once you know where the money is coming from. What makes it feel difficult is that the three differences this market usually leads with are no longer differences at all — one was removed by a federal amendment, and two were never true.

What the two words actually name

A free zone company is licensed by a free zone authority, operates from premises inside that zone's boundary, and sells to customers outside the UAE and to other companies inside free zones. There are dozens of these authorities, each with its own rulebook, and the differences between two free zones can be larger than the difference between a free zone and the mainland. Narrowing forty-plus of them to a shortlist of three, on premises, visas and the qualifying-income test, is the work our free zone company formation service does.

A mainland company is licensed by the economic department of an emirate, holds premises anywhere in that emirate, and may sell to anybody in the UAE without an intermediary. It is the only one of the two that reaches the domestic market directly.

Neither word describes a tax status, an ownership status or a quality of location. Both are licensing jurisdictions. Everything else you have been told is downstream of that, and some of it is wrong.

A third word circulates alongside them, offshore, and it does not belong in the same comparison: it is not a third way of licensing a trading business. Mainland, free zone and offshore, compared on what the business actually has to do sets out why an offshore company is not a trading company at all, which is the reason this page has two sides rather than three.

The three claims that decide most of these conversations, and what each is worth now

At the date of review (17 September 2026), every figure in this section is the one the issuing authority publishes. Rates, bands and thresholds of this kind sit in Cabinet and ministerial decisions that can be replaced without notice, so a number you were quoted last year is a question, not an answer.

A local service agent still appears in the mainland paperwork, and it is worth naming precisely because it gets confused with the rule that went. The federal government's own portal states that businesses owned completely by non-GCC residents require a local service agent from the UAE, under an agreement attested by the notary public or the court, and it lists that attested contract among the documents wanted for civil establishments and companies wholly owned by non-GCC nationals. Two things follow. The rule is narrower than the market makes it — it is about wholly non-GCC-owned businesses, not about every professional licence. And the portal says nothing about what the agreement contains — no rights, duties or fee for the agent — so what an agent can and cannot do in your company is something to read in your own contract rather than assume. Our page on the UAE obligations that no longer exist works through the rest of the list.

The 0% free zone rate is the claim that needs the most care, because a version of it is true. A Qualifying Free Zone Person can reach 0% on qualifying income only, against conditions it has to satisfy every year: adequate substance in the zone, arm's length dealings with documentation, audited financial statements under Ministerial Decision No. 84 of 2025 whatever the revenue, and qualifying activities as defined by Ministerial Decision No. 229 of 2025. Income that is not qualifying income is taxed at 9% with no nil band beneath it — the AED 375,000 band belongs to the ordinary rate rule and does not reach a qualifying free zone person. Revenue from mainland UAE customers is generally not qualifying income, and Ministerial Decision No. 229 of 2025 sets the de minimis limit at 5% of total revenue or AED 5,000,000, whichever is lower. Breach it, or any other condition, and the status goes from the start of that tax period and for the four that follow. A mainland company has none of that machinery: 9% above the nil band, and no annual test to sit.

So the honest tax comparison is not a rate against a rate. It is a simple rate against a conditional one, and which is better depends entirely on your revenue mix.

The question that settles it

Where does the person paying the invoice sit? Answer that, and the jurisdiction usually falls out on its own.

Two answers on that table are traps in disguise. "A bit of both" is the most common real situation, and it is the one where people choose a zone for the tax position and then lose the tax position by succeeding onshore. And "I am not sure yet what I am selling" means the activity has not been settled, which is a different problem that neither jurisdiction fixes.

What is identical on both sides, and is often sold as a difference

The part that surprises people most is that the licensor is often not the decision-maker. Where an activity is one the state treats as strategic, the licence application is gated by somebody else: under Cabinet Resolution No. 55 of 2021, in force since 1 June 2021, seven activities carry that status — security and defence, banks and exchange houses and finance and insurance companies, money printing, telecoms, Hajj and Umrah services, Quran memorisation centres, and services related to fisheries. For six of them the sector regulator, not the licensing counter, decides the percentage of national participation on the application; only fisheries carries a published figure, and it is 100% national participation. The competent authority has five working days to refer the file and the regulator fourteen working days to decide. Dubai's 2025 resolution on zone establishments working onshore has the same shape from the other direction: the free zone licensing authority's approval, plus the approval of any government entity supervising the activity where one is required. Whichever side you pick, the licence is the part a licensor controls, and the clearance is not.

The four differences that are real

Market reach. The mainland licence reaches UAE customers directly and the zone licence does not. Everything else on this page is secondary to that.

Who holds the conditions on your licence. A zone authority is one counter: it licenses the company, leases the premises, issues the establishment card and sponsors the visas. On the mainland those functions sit with different bodies that keep separate files and do not chase each other. That administrative difference is what founders are really describing when they say the mainland is harder, and it is worked through in full in what is actually harder about a mainland company.

How premises work. In a zone the landlord and the licensor are the same organisation, so a premises problem is rarely a licensing problem — at the cost that the facility is a term of a package rather than something you negotiate. On the mainland the address is a market lease with a third party, recorded with a separate authority, and it has to be suitable for the activity in that authority's judgement rather than in yours.

Exit and change. A mainland company's dissolution and winding up run under the companies law itself. A zone entity's exit runs under that zone's own rulebook, which the companies law leaves standing wherever the zone has a special provision on the point. Moving between the two changed in 2025. Federal Decree-Law No. 20 of 2025 added a provision to the companies law, and at the date of review (17 September 2026) the consolidated English text on the federal legislation portal says a company may move its company record from a free zone to the mainland authority, or the other way, while keeping its legal personality. The conditions are specific: the enrolment systems of both authorities have to permit the move, both authorities have to approve it, nothing recorded against the company may stand in the way, the decision has to be announced, and a company arriving on the mainland has to follow the controls the relevant authorities set and bring itself into line with the federal law. A move into or out of a financial free zone follows controls the law leaves to the Cabinet. The same law still lets a zone company, where its own zone's legislation permits onshore work, open branches or representative offices in the State instead, and those branches answer to the federal law. So a transfer route exists in law; whether it is open between the two authorities you care about, on the date you need it, is a question to put to both of them in writing before you plan around it.

Why the cost comparison you have been shown is not a comparison

This page carries no licence price, no lease figure and no visa cost, and that is deliberate. The version of it this replaces quoted licence prices with no source attached, and prices in this market move without notice. The only dirham amounts here are tax thresholds, and each of those comes from the decision that sets it.

What can be said honestly is that the two sides are usually quoted at different scopes. A zone package tends to bundle a licence with a nominal workspace and a small visa allocation. A mainland licence is quoted as a licence, with a lease, a labour file and an immigration file arriving separately as your problem. Setting one headline beside the other compares a bundle with a component.

An honest comparison prices the same team, in the same usable space, with the same number of visas, on both sides — and it adds the second licence if your customers are onshore, because that cost is real and it recurs. The cheapest UAE licence is priced for year one lists the line items no package contains, and nobody pays the rate in the table does the same job for tax rate comparisons.

Where this comparison is the wrong frame

Your activity is regulated finance, insurance or virtual assets. Then neither answer is the answer. Banks, exchange houses, finance companies and insurance sit on the strategic-impact list with the Central Bank as the deciding regulator, the financial free zones run their own regimes under their own regulators, and virtual assets answer to a regulator of their own. The free-zone-versus-mainland question does not reach any of those perimeters.

You have not settled what you are selling. The activity determines the licence category, the regulator, the premises class and the bankability. Choosing a jurisdiction first is the most expensive sequencing error in UAE formation, and it survives every correction on this page.

You want the answer to be "both". Sometimes it is, and then it is two companies or a company and a branch, with two sets of books and two renewal dates. That is a group structure decision rather than a comparison, and it should be priced as one.

You are choosing between two free zones rather than between a zone and the mainland. Then this page is answering a question you do not have. The zones differ from each other on premises model, visa arithmetic, designated status and sector focus far more than they differ from the mainland — start from a free zone is a cluster before it is a price.

You expect to change your mind later. Plan on the assumption that you are choosing rather than converting. Since the 2025 amendment the companies law does let a company's record move between a free zone and the mainland, but only where both authorities' systems permit it and both approve; the other routes across that line are second licences, branches and permits. Each carries its own cost to your visas, contracts, bank account and tax position. The options are set out in moving between free zone and mainland after you have chosen. Read that before choosing, not after.

How to settle this in an afternoon

1. Write down your first ten expected customers and where each of them is. If most are outside the UAE, you are looking at zones; if most are inside it, you are looking at the mainland.
2. Name the activity precisely enough to find its licence category, and ask which sector authority has to clear it.
3. Ask what the premises requirement is on each side, and what visa capacity that premises carries — in writing, for the specific unit.
4. Model the tax position at your real revenue mix, including what happens if the onshore share grows.
5. Price both sides at the same scope: same team, same space, same visas, plus the second licence if you will need onshore reach.
6. Decide, and treat it as a decision that does not reverse cheaply.

Tell us where your customers are and what you are selling them. Those two answers usually eliminate one side of this comparison in the first conversation, which leaves the interesting question — which authority, on which terms — with the time it deserves.

What is actually harder about a mainland company · Moving between free zone and mainland after you have chosen · Compare the free zones · Mainland company formation

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