Mainland vs Free Zone in Dubai: A Decision Table for Founders

The mainland-versus-free-zone debate used to have a simple answer: free zones gave you 100% ownership, mainland did not. That answer expired in 2020.

Federal Decree-Law 26 of 2020 removed the requirement for a majority Emirati shareholder, and Federal Decree-Law 32 of 2021 consolidated it. Most mainland activities are now fully foreign-owned. So the old tiebreaker is gone, and founders are left comparing two things that look increasingly similar on the surface and behave very differently underneath.

Five questions get you to the right answer. Work through them in order.

The five questions that decide it

Customers. Activity. Visas. Tax. Budget. In that order, because the first one overrides the rest more often than not.

Question 1: where are your customers?

This is the one that decides most files.

A mainland company licensed by Dubai's Department of Economy and Tourism can invoice UAE customers directly, open a shop or office anywhere in the emirate, and bid for government contracts.

A free zone company operates inside its zone and internationally. To sell into the UAE mainland market it generally needs a local distributor, a mainland branch, or a service arrangement. That is not a technicality; it is a cost and a margin.

So: if your buyers are UAE companies or UAE consumers, mainland is usually correct even when the licence line looks more expensive. If your buyers are outside the UAE, or are other free zone companies, the free zone route is cleaner and cheaper.

Consultancies and service businesses sit in the middle, and they are the ones most often sold the wrong structure.

Question 2: what does your activity require?

Your licensed activity determines your authority, your approvals and sometimes your ownership.

The UAE Government portal lists more than 2,000 mainland activities, and states plainly that "the legal form of the business must match the business activity." Some activities need approvals from named bodies: TDRA, the Central Bank, the Ministry of Climate Change and Environment, the Civil Aviation Authority, the Securities and Commodities Authority.

A short list of activities with strategic impact, set out in Cabinet Resolution 55 of 2021, still requires special handling. The verbatim categories include security and defence, banks and finance and insurance, telecommunications, Quran recitation centres, and services related to fisheries, where the resolution states citizen shareholding is 100%.

Free zones each publish their own activity lists, and not every zone registers every entity type. The government portal is explicit: "All free zones might not register all types of companies."

Getting this line right first time matters, because changing it later is a paid amendment. DMCC charges AED 1,515 for an activity change, RAK ICC AED 600. Our guide to choosing a business activity goes into how to pick it.

Question 3: how many visas do you need?

Here is a fact that will save you an argument: there is no published federal or emirate rule mapping desk type to visa count. None. Quotas are set per free zone, per package, and are frequently negotiated.

What is verifiable is the shape of it. Flexi-desk and co-working carry the smallest quotas. A dedicated or serviced office scales with square metres. Warehouse and industrial space scales with area.

Only two zones publish numbers you can hold them to. SHAMS advertises "up to 50 visas per licence" as a ceiling. RAKEZ states that its Instant Licence Lite package at AED 12,000 includes one residence visa.

On the mainland, quota follows your Ejari-registered space, which is covered in Ejari and the office requirement.

Question 4: does 0% corporate tax actually apply to you?

The 0% free zone rate is real, and it is conditional. Cabinet Decision 100 of 2023 and Ministerial Decision 229 of 2025 set out what a Qualifying Free Zone Person actually has to do.

Qualifying activities, verbatim, include manufacturing, processing, trading of qualifying commodities, holding shares and securities for investment purposes, ship operation, reinsurance, fund management, wealth and investment management, headquarter services to related parties, treasury and financing to related parties, aircraft financing and leasing, distribution in or from a designated zone, and logistics services.

Excluded activities include most transactions with natural persons, banking, insurance, finance and leasing, and ownership or exploitation of immovable property other than commercial property inside a free zone transacted with another free zone person.

Three conditions people miss:

• Substance. Core income-generating activity must happen in the free zone or designated zone, with adequate assets, adequate qualified full-time employees and adequate operating expenditure.
• De minimis. Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower.
• Audited accounts. Ministerial Decision 229 of 2025 added a requirement for audited financial statements prepared under Ministerial Decision 84 of 2025.

And the penalty for failing any of them is severe: the company ceases to be a Qualifying Free Zone Person from the beginning of that tax period and for the following four tax periods.

Two more points worth knowing. Small Business Relief, which lets companies under AED 3 million in revenue elect no taxable income, explicitly excludes a Qualifying Free Zone Person. And MD 229/2025 quietly replaced MD 265/2023 retroactively to 1 June 2023, adding logistics and environmental commodities such as carbon credits to the qualifying list, plus a rule that commodity trading does not qualify where distribution, warehousing, logistics or inventory management make up 51% or more of revenue.

Question 5: what is your real budget?

IFZA, DAFZA, SHAMS and Dubai South publish nothing and route enquiries to a form. Secondary quotes for IFZA vary by hundreds of dirhams on the entry package alone, so treat any exact figure as an estimate until the zone writes it down for you.

The full picture, including the costs quotes leave out, is in business setup cost in Dubai.

The decision table

Where offshore fits

Offshore is a third thing entirely, and it is regularly mis-sold as a cheap free zone.

A JAFZA Offshore or RAK ICC company is a holding and asset-protection vehicle. It does not grant residence visas. It does not give you a UAE office. It does not make you UAE tax resident on its own.

What it is good for: holding shares, holding property where permitted, international trading, and structuring. If somebody offers you an offshore company as the cheap route to a UAE residence visa, that is a reason to end the conversation. See offshore company formation for what it genuinely does.

What we would tell you on the phone

Nine times out of ten the conversation lasts two minutes, because the customer question settles it.

If you are selling into the UAE, take the mainland licence and stop optimising. The distributor arrangement a free zone would need usually costs more over three years than the difference in licence fees, and it puts a third party between you and your own customers.

If you are not selling into the UAE, take the free zone that matches your activity and your audit appetite. DMCC if you want the ecosystem and can live with mandatory audit. RAKEZ or Meydan if speed and price matter more. DIFC if you are financial services and need common law.

The trade-off worth naming: free zone setup is faster and cheaper on day one, and its tax position is more conditional every year. Mainland is slower and pricier on day one, and its tax position is simpler. Pick the one whose ongoing obligations you will actually keep up with.

MSM files in both. Send your activity, your customer base and your headcount, and we will tell you which one your file belongs in. See mainland company formation and free zone company registration.