Can a Free Zone Company Engage in Business on the Mainland in Dubai?

Earlier, free zone companies were allowed to carry out business activities only in the zones to which they were legally bound. Consequently, a separate Mainland company was needed to engage in business on the Mainland in dubai. However, the UAE government has realized the inadequacies and brought in a new provision to allow some free zone entities to operate in the mainland under those circumstances.

Mainland Company in the Dubai

Companies operating in the onshore environment of the Emirates are known as the UAE mainland companies which follow state laws. According to the legal regulations, the business type, liability, ownership, and registration of the business, entrepreneurs have the privilege of organizing a mainland business as either a limited liability company with a maximum of 50 shareholders or as a sole trader. Mainland business licenses and registrations are obtained through the Department of Economic Development (DED) to enable them to integrate into the local economy. This structure is particularly beneficial for organizations engaging in operations in the UAE mainland because of its strong economic base.

Free Zone Company in the UAE

On the other hand, free zone companies operate with the following advantages: no taxes, 100% free holding, and perfect free transfer of profits. These zones are established near major access points, hence providing a smooth running of business activities and integration into the world market. 

The UAE has almost 44 specialized free zones to offer, so depending on the type of enterprise, businessmen can benefit from the specific conditions conducive to different kinds of activities. Ashamedly or not, I found myself asking whether a free zone company could also transact on the mainland. It is now time to discuss the prospects concerning business setup in the UAE.

Can a Free Zone Company do Business on the Mainland in Dubai?

Business entities in free zones are governed by certain rules laid down by the authorities of the certain emirate. Every free zone has its own set of processes and restrictions in reading and or applying ECCs.

Normally, companies set up within a free zone are only allowed to carry out their activities within the free zone and not elsewhere mainly on the mainland.

In contrast, the company of its interest has to seek initial permission from the related free zone authority if the company aims for the expand of its business to the mainland in dubai. Subsequently, the company has to go to the local Department of Economic Development (DED) in the specific emirate to fulfill licensing conditions.

Key Considerations

• Nature of Business: It is important to note that the type of business activity influences the probable prospects of mainland operations. Some of the activities may necessitate having an establishment on the mainland while others can be carried out by a representative office or a distributor.
  
• Regulatory Compliance: It is important to make sure that you are also aware of the free zone and mainland rules and regulations. Failure to meet the standards attracts penalties and interruptions of business in the process.
  
• Market Reach: Consider if you need to have a mainland location to effectively target the identified consumer group. Disadvantages and opportunities that can be obtained by opening an operation on the mainland should be examined.
  
• Cost and Time: Going to the mainland in dubai entails other expenses such as office space, licenses, and staff needed.

Common Scenarios

• Civil Work Companies: It is legal for free zone civil work companies to open a branch on the mainland with locals as service agents.
  
• Professional Services: A few FSZ companies operating in professional services (i.e., consultancy, IT) may apply for permits to operate on the mainland in dubai.
  
• Distribution and Trading: Direct selling to the mainland may be prohibited or limited, however, free zone firms may attend or use local representatives such as distributors or agents to access the Mainland market.
  
• E-commerce: New forms of sales channels have emerged owing to the advancement in e-commerce making it easier for the free zone companies to deal with mainland consumers.
  

Important Considerations

• Permits and Approvals: In case of any operations on the mainland, it is always important to ensure that you have all the necessary permits, especially those from the DED.
  
• Local Sponsorship: At times it might be mandatory to have a local partner for undertaking operations in the mainland in Dubai.
  
• Tax Implications: High level of awareness of mainland tax laws, especially VAT if business is operating on the mainland.

Conclusion

Of even greater strategic significance when planning the operations of a business in Dubai is the location decision, whether the business should be established on the mainland or in a free zone. However, there are still clear differences between the two categories, making it important to be aware of the particular rules, costs, and market standing.

Bizdaddy Consulting focuses on business setup and advisory services that will help you not lose yourself in the business structure of UAE. Our specialists can evaluate the required structure for your business, recommend the most optimal type of structure, and assist you with its development.

That is why it is possible to make conscious decisions, avoid risks, and achieve maximum results for your business in Dubai due to our knowledge.

Contact us today and let us know your ideas for doing business so that we can develop your ideas.

FAQs

Q: Is it possible that a free zone company is allowed to handle its business independently on the mainland in Dubai?

A: In most industries, the answer is no; but there are some marginal cases as well as developing regulations. Certain free zone companies are now allowed to get licenses to operate on the mainland subject to certain conditions.

Q: What are the advantages of having a Company on the mainland?

A: Mainland companies are allowed full ownership, free operation, and direct access and trade with the local markets and they may stand a better chance at gaining access to the government business.

Q: What makes a free zone company more favorable than a company established in another geographical area?

A: Some of the key privileges of free zone companies include; Free zones are 100 % foreign-owned Companies in free zones enjoy tax exemptions and pensions and there are easy formalities. They are favorable for companies that operate more in the export market.

Q: Can I change a free zone company to a mainland company?

A: It is important to note that in most circumstances it is impossible to transform a free zone company into a mainland company without the dissolution of the free zone company and the establishment of a new mainland company. Nevertheless, there may be certain cases when one or the other or both of them will be used.

Q: What are the limitations concerning the mainland trading of free zone companies?

A: These companies that have establishments in the free zone together with in mainland are governed under the free zone as well as the mainland laws. These entail certain guidelines that can be stipulated due to the nature of the business and the permits that have been acquired.

Q: Do I need to have a local sponsor if I am running a mainland company?

A: Yes, local support otherwise known as a local partner (UAE national or UAE incorporated company) is mandatory for mainland company formation.

Q: Mainland and free zone companies are also of interest when it comes to the tax scheme of the country; what are the consequences of this?

A: Mainland companies are taxable on a corporate tax basis; on the other hand, free zone companies are generally exempted. Every type of company is regulated by the VAT law.

Q: Am I allowed to have my free zone company hire personnel to work on the mainland in Dubai?

A: This largely depends on the respective regulation of the free zone and the nature of the work to be done. Occasionally, companies in free zones may be permitted to sponsor visas for mainland projects’ employees.

Q: What typical difficulties arise when establishing a business in a free zone or on the mainland in Dubai?

A: Choosing the ideal site, getting the required permits, following rules, and getting employee visas are common obstacles.