Mainland or free zone: the UAE choice that decides the rest

The registry a company sits in settles more than its address. It decides which authority issues the trade licence, whether the business may sell to a customer in Sharjah, who issues its employees' residence visas, whether imported goods pay duty at the gate, and which of two corporate tax rates lands on the profit.

Ownership used to decide it. Federal Decree-Law No. 26 of 2020, in force from early 2021, overhauled Commercial Companies Law No. 2 of 2015: it abolished the requirement for a majority Emirati shareholder for most activities and removed the obligation on branches of foreign companies to appoint a UAE national service agent. Federal Decree-Law No. 32 of 2021 consolidated that position. A foreign investor may now own the whole of a mainland company, which retired the main reason people chose a free zone before 2021.

Ownership is settled, with a named list of exceptions

The exceptions are published. Full foreign ownership is not available in security and defence and activities of a military nature, telecommunications, banks, exchange, financing, insurance and banknote or coin production, commercial agencies, the organising of Hajj and Umrah, Holy Quran recitation institutes, fish catching, natural pearl catching and the catching of marine animals. The Cabinet may also set licensing conditions for activities of strategic impact, including limits on foreign ownership, under Cabinet Resolution No. (55) of 2021.

Where you may sell

A free zone company sits outside mainland jurisdiction for licensing. It trades inside its zone and internationally with little friction. Selling into the mainland is regulated. The federal government portal states that a free zone company must work through a licensed mainland distributor or establish a mainland branch or company, and that direct sales in the mainland are generally not permitted without the required mainland licences or approvals.

Dubai has written the mechanics down. Executive Council Resolution No. (11) of 2025, issued on 3 March 2025, lets a free zone establishment work outside its zone and within the Emirate once the Department of Economy and Tourism has licensed or permitted it. Records for the mainland activities must be kept separate from those for the zone. Establishments already trading outside their zone were given a year to comply, extendable once. Financial establishments licensed in the Dubai International Financial Centre fall outside it.

Other emirates answer the question their own way. Abu Dhabi's Department of Economic Development lists dual licensing among what its free zones offer, and names access to the local market without restrictions as the mainland's advantage.

The zero rate is narrower than the phrase suggests

Under Article 3 of Federal Decree-Law No. 47 of 2022, an ordinary taxable person pays 0 per cent on taxable income up to a Cabinet-set threshold and 9 per cent above it. Cabinet Decision No. 116 of 2022 fixes that threshold at AED 375,000. A qualifying free zone person is taxed on a different basis: 0 per cent on qualifying income, 9 per cent on taxable income that is not qualifying income. It gets no 0 per cent band on its first AED 375,000.

The status carries conditions. Article 18 requires adequate substance in the State, qualifying income as determined by the Cabinet, no election out of the regime under Article 19, and compliance with the arm's length principle in Article 34 and the transfer pricing documentation rules in Article 55. Ministerial Decision No. 265 of 2023 adds non-qualifying revenue inside the de minimis limit, and audited financial statements. Small Business Relief, set at AED 3,000,000 of revenue, is closed to a qualifying free zone person.

Cabinet Decision No. 100 of 2023 groups qualifying income into strands. Income from another free zone person that is the beneficial recipient of the goods or services. Income from anyone else, but only where the activity is a qualifying activity. Income from qualifying intellectual property, calculated by formula. The activity lists sit in Ministerial Decision No. 265 of 2023, and they are specific.

• Manufacturing or processing of goods or materials
• Trading of qualifying commodities: metals, minerals, energy and agriculture commodities traded in raw form on a recognised exchange
• Holding shares and securities for investment, counted as such only when held for at least twelve uninterrupted months
• Ownership, management and operation of ships in international transport, excluding local transport and leisure use
• Reinsurance services regulated under Federal Law No. 6 of 2007
• Fund management and wealth management under the Central Bank, the DFSA, the FSRA or the Securities and Commodities Authority
• Headquarter, treasury and financing services to related parties
• Financing and leasing of aircraft, engines and rotable components
• Distribution in or from a designated zone, with goods entering the country imported through that zone
• Logistics services, and anything ancillary to the activities above

The excluded list runs the other way. Transactions with natural persons are excluded, apart from ships, fund management, wealth and investment management and aircraft financing. Banking is excluded, and so is insurance other than reinsurance and the captive insurance provided as a headquarter service. Immovable property is excluded unless it is commercial property in a free zone and the counterparty is a free zone person.

The de minimis test, and what failing it costs

Read the last two words first. A company with AED 40,000,000 of revenue is held to 5 per cent, or AED 2,000,000. One with AED 200,000,000 is held to AED 5,000,000, which is 2.5 per cent. The bigger the business, the tighter the proportion. Failing is not a rate adjustment. Under Article 5 of the same decision, a person that fails any condition stops being a qualifying free zone person from the start of that tax period and for the following four.

What a mainland presence does to the tax position

A mainland branch does not cost a company its status. It creates a domestic permanent establishment, a place of business or other form of presence outside the free zone. Income attributable to it is taxed at 9 per cent, with no benefit from the AED 375,000 band. Revenue attributable to it drops out of both sides of the de minimis calculation. The same establishment arises without a branch where a person habitually concludes contracts outside the zone on the company's behalf.

Substance, and where the work has to happen

Article 8 of Cabinet Decision No. 100 of 2023 requires the core income-generating activities to be performed in the free zone, with adequate assets, an adequate number of qualified full-time employees and adequate operating expenditure for each activity. Distribution is stricter. It has to be conducted in or from a designated zone, a term taken from Federal Decree-Law No. 8 of 2017 on Value Added Tax, and the goods entering the country must be imported through that zone. Core activities may be outsourced inside the zone with adequate supervision.

Customs, premises and staff

Goods imported into a free zone carry 0 per cent customs duty, and goods held there for re-export carry none. Duty falls due when they move into the mainland market. A mainland importer clears once, at the point of import.

Premises are not optional on the mainland. Every business must have a physical address, the premises must satisfy the relevant Department of Economic Development and municipal planning rules, and an office or warehouse rental agreement must be provided. In Dubai it has to be registered with Ejari. Free zones sell space in graded packages, and the government portal puts the visa position plainly: the number a business can obtain depends on factors such as the package it signed up for, and any increase is for the zone authority to decide.

A mainland employer opens a file with the Ministry of Human Resources and Emiratisation, obtains an establishment card tied to the licence, and draws work permits against an electronic quota regulated by Cabinet Resolution No. 203 of 2022. A free zone employer applies to its own zone authority. Federal Decree-Law No. 33 of 2021 governs most free zone employees alongside the zone's own rules, while the DIFC and ADGM run separate employment regimes.

Two documents settle most cases, and neither is the zone's brochure. One is the activity list the DET issues with each licensing authority under Article 9 of the Dubai resolution, which says whether an activity needs a branch in the Emirate, a branch operating out of the zone, or a six-month permit. The other is the zone's own licence schedule, which states what the company may invoice for. Read both against the customer list.