If you're starting a business in Dubai, this is usually the first decision you'll face: should your company be set up in a free zone or on the mainland?

Both structures can offer 100% foreign ownership for many activities. So, the real question is no longer simply about ownership. It's about where you plan to sell, what activities you will carry out, your tax position, licensing requirements, and how your business will actually operate day to day.

This guide breaks down the real differences in plain language and covers some of the important legal and regulatory developments introduced in 2025.

What Is a Free Zone Company?

A free zone is a designated business area in the UAE that operates under its own licensing authority and regulatory framework.

Dubai has multiple free zones, with many focused on particular industries or types of businesses. Examples include DMCC for a wide range of trading and commercial activities, Dubai Internet City for technology and related businesses, and IFZA for a broad range of business activities.

A free zone company can offer:

• 100% foreign ownership, subject to the rules of the relevant free zone
• Streamlined company formation procedures
• Flexible office solutions depending on the free zone and licence
• Repatriation of capital and profits, subject to applicable laws and regulations
• Access to a specialised business ecosystem, depending on the free zone

The important trade-off is mainland market access.

A free zone licence does not automatically give a company unrestricted permission to conduct every type of business activity throughout the UAE mainland. Depending on the activity and circumstances, mainland operations may require a distributor, a mainland branch, or an applicable licence or permit.

Dubai's 2025 regulatory framework has also created additional routes for eligible free-zone establishments to conduct certain activities outside their free zone and within Dubai. We will explain this further below.

What Is a Mainland Company?

A mainland company is licensed by the Dubai Department of Economy and Tourism (DET) in Dubai, or by the relevant economic department in another emirate.

A mainland licence generally provides the ability to conduct the licensed economic activity within the UAE, subject to the activity-specific regulations, approvals and licensing conditions.

A mainland company can offer:

• 100% foreign ownership for many business activities
• Direct access to customers throughout the UAE, subject to the relevant activity and licensing requirements
• The ability to apply for and participate in government and other contracts where the relevant procurement rules permit
• Greater flexibility regarding the location of the business premises, subject to zoning and licensing requirements

The trade-off is that mainland companies may have different establishment and compliance costs, and many activities require suitable physical premises.

However, a physical office is not universally compulsory in the same form for every mainland business. Office and premises requirements depend on the legal form, activity, licence and applicable DET requirements.

Free Zone vs Mainland: Side-by-Side

Corporate Tax: The Part Most People Get Wrong

The UAE's federal Corporate Tax regime applies to financial years starting on or after 1 June 2023, under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended.

This means that being established in a free zone does not automatically make a company tax-free.

For businesses subject to the standard Corporate Tax regime, the rate is:

• 0% on taxable income up to and including AED 375,000; and
• 9% on taxable income exceeding AED 375,000.

The Federal Tax Authority confirms these rates for ordinary taxable persons.

What About Free Zone Companies?

A qualifying free-zone business can benefit from the special Qualifying Free Zone Person (QFZP) regime.

A QFZP can benefit from:

• 0% Corporate Tax on Qualifying Income, and
• 9% Corporate Tax on taxable income that does not qualify as Qualifying Income.

Importantly, the QFZP regime is not the same as the standard AED 375,000 threshold. The FTA specifically states that a QFZP is not entitled to the standard 0% rate on its first AED 375,000 non-qualifying taxable income.

To qualify for the QFZP regime, a free-zone person must satisfy several conditions, which include requirements relating to:

• Qualifying Income
• Adequate substance in the UAE
• The de minimis requirement
• Transfer pricing compliance
• Audited financial statements
• Not electing to be subject to the standard Corporate Tax regime

The FTA's guidance confirms these requirements.

The De Minimis Requirement

The De minimis requirement is also important.

A free-zone person can generally remain within the QFZP regime where its non-qualifying revenue does not exceed the lower of AED 5 million or 5% of total revenue, subject to the applicable rules.

However, it is too broad to say that any income from a mainland customer automatically causes the company to lose its 0% status.

The tax treatment depends on the nature of the income, the activity, whether the transaction falls within the categories of Qualifying Income, and whether the business has a domestic or foreign permanent establishment.

For example, the FTA explains that income attributable to a Domestic Permanent Establishment outside the free zone is subject to the 9% Corporate Tax rate.

This is why free-zone businesses should assess their actual business model and transactions rather than assuming that every mainland customer automatically destroys their QFZP status.

VAT Is Different

VAT is separate from the Corporate Tax.

The standard UAE VAT rate is 5%, and free-zone status does not automatically exempt a business from VAT.

For UAE-resident businesses, VAT registration is generally mandatory when taxable supplies and imports exceed AED 375,000, while voluntary registration is available once the applicable threshold of AED 187,500 is exceeded, subject to the VAT rules.

Certain free zones designated for VAT purposes can have special VAT treatment for specific transactions, particularly involving goods. Therefore, it is important to distinguish free-zone status for licensing purposes from the separate concept of a Designated Zone under the UAE VAT rules.

What Changed in the UAE in 2025 — and Why It Matters

Two important developments in 2025 are relevant when comparing free-zone and mainland structures.

1. Greater Flexibility in Corporate Registration and Restructuring

Federal Decree-Law No. 20 of 2025 amended certain provisions of Federal Decree-Law No. 32 of 2021 on Commercial Companies.

The amendment introduced a new framework regulating the transfer of a company's registration in the commercial register with the relevant authorities. The Ministry of Economy and Tourism describes this as one of the key changes introduced by the 2025 amendment.

This is an important development for businesses considering restructuring their corporate presence.

However, it would be too broad to say that any company can simply move from a free zone to mainland while automatically keeping every licence, contract and trading arrangement unchanged.

The transfer remains subject to the applicable legislation, requirements, and approvals of the relevant authorities.

Therefore, the 2025 amendment creates greater flexibility for corporate restructuring, but it should not be presented as a completely automatic free-zone-to-mainland conversion process.

2. Dubai Free-Zone Companies Can Apply to Conduct Certain Activities in Dubai

Under Executive Council Resolution No. 11 of 2025, eligible free-zone establishments in Dubai can conduct activities outside their free zone and within the Emirate of Dubai, subject to obtaining the relevant licence or permit.

The Resolution provides three mechanisms:

• A licence to establish a branch within Dubai;
• A licence to establish a branch operating out of the free zone; or
• A temporary permit to conduct specific activities within Dubai.

The route depends on the activity and the applicable conditions.

The Resolution requires, among other things, a valid free-zone licence, approval from the relevant free-zone licensing authority, and, where applicable, approval from the government entity responsible for supervising the activity.

For temporary permits, the Resolution provides for a period of up to six months, subject to its conditions. It also provides separate financial records for activities conducted outside the free zone and those conducted within the free zone.

The Resolution also provides a list of economic activities that may be conducted within Dubai under the relevant branch or permit route.

This means the old statement that "a free-zone company can never operate on the mainland" is no longer accurate.

At the same time, it would be equally inaccurate to say that every free-zone company now has unrestricted mainland access.

The permission is activity-specific and subject to the applicable licence, permit, approvals and conditions.

A Note on Banking

Whichever structure you choose, opening a UAE corporate bank account is a separate process from obtaining a business licence.

Banks conduct their own due diligence and may assess factors including:

• Ownership and beneficial ownership
• Business activity
• Expected transactions
• Source of funds
• Business model
• Customer and supplier profile
• Supporting corporate documents

A free-zone licence does not automatically guarantee easier bank account approval, and a mainland licence does not guarantee it either.

What generally matters is whether the company's documentation, business activity, ownership structure, and actual operations are clear and consistent.

So, Which One Should You Choose?

There is no single structure that works for every business.

A few questions can help determine which framework may be more suitable:

Do most of your customers sit inside the UAE?

A mainland structure can provide a more straightforward route for businesses that need to conduct their licensed activities directly throughout the UAE.

A free-zone company may also be able to access Dubai's wider market through the applicable branch or permit mechanisms, but this depends on the activity and regulatory requirements.

Do you want to bid for government or other institutional contracts?

The answer depends on the specific tender and procurement requirements.

A mainland company may be able to participate where the relevant procurement rules allow it, while a free-zone company may need to satisfy additional registration, licensing or contracting requirements.

Therefore, it is better to check the requirements of the government or semi-government entity rather than treating the issue as an absolute free-zone prohibition.

Is your revenue mainly international or is it from qualifying free-zone activities?

A free-zone structure may be attractive where the business model fits within the QFZP framework.

However, the 0% Corporate Tax rate is conditional, and businesses should assess their income streams, activities and substance requirements before relying on the QFZP regime.

Are you unsure which structure you need?

The 2025 corporate-law reforms provide greater flexibility for companies considering restructuring, but they do not eliminate the need to choose the appropriate structure and licence at the outset.

The right decision still depends on your activity, customers, premises, regulatory requirements, tax position, and long-term plans.

Get It Right from the Start

Choosing between a free zone and mainland setup can affect your market access, tax treatment, licensing requirements, premises, compliance obligations and future expansion plans.

The right structure is therefore not necessarily the one with the lowest initial setup cost. It is the structure that fits the way your business actually intends to operate.

At Expertz Business Hub, we help founders assess their business activity, target customers and growth plans, and identify the appropriate UAE company setup. Our team can also assist with company registration, Corporate Tax and VAT registration, accounting and compliance requirements.

Get in touch with our team at info@ebhub.ae or 050 864 3999 to discuss the right setup for your business.

This article is for general informational purposes only and reflects the UAE legal, tax, and regulatory framework considered as of September 2026. UAE corporate, tax, licensing and free-zone rules may be amended from time to time, and requirements can vary depending on the activity, jurisdiction, legal form and relevant authority. This article is not legal or tax advice. Businesses should confirm the requirements applicable to their specific circumstances with the relevant authority or qualified professional adviser before making a decision.

Key Laws and Regulatory References

1. Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended — the principal federal legislation governing commercial companies in the UAE.
2. Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended — the UAE Corporate Tax framework.
3. Federal Decree-Law No. 20 of 2025 — amended selected provisions of the Commercial Companies Law and introduced further corporate registration and restructuring provisions.
4. Executive Council Resolution No. 11 of 2025 — regulates the conduct of activities by eligible free-zone establishments outside their free zones and within the Emirate of Dubai.
5. Cabinet Decision No. 55 of 2023 — relevant to the determination of Qualifying Income for the QFZP Corporate Tax regime.
6. Ministerial Decision No. 139 of 2023, as amended/replaced where applicable — relevant to Qualifying Activities, Excluded Activities and QFZP conditions.
7. Federal Tax Authority guidance on Free Zone Persons — provides guidance on QFZP requirements, Qualifying Income, adequate substance, de minimis requirements and taxation of non-qualifying income.
8. UAE VAT legislation and Federal Tax Authority guidance — relevant to VAT registration thresholds and the VAT treatment of supplies.
9. Dubai Department of Economy and Tourism (DET) — the relevant Dubai authority for mainland economic licensing and the authority identified in Executive Council Resolution No. 11 of 2025.