The United Arab Emirates (UAE) is a global business hub, offering entrepreneurs a range of jurisdictions to establish their companies, including free zones, mainland, and offshore setups. A common question among business owners is: Can a free zone company do business on the mainland? Understanding the distinctions between these jurisdictions and the regulations governing them is crucial for making informed decisions.
This article explores the possibilities, limitations, and strategies for free zone companies looking to operate in the UAE mainland, along with the benefits, legal requirements, and practical steps involved. By delving into these aspects, we aim to provide clarity and actionable insights for entrepreneurs navigating the UAE’s dynamic business landscape.
Understanding Free Zone and Mainland Jurisdictions
What Are Free Zones in the UAE?
Free zones in the UAE are designated economic areas designed to attract foreign investment through incentives like tax exemptions and full ownership. Each free zone operates under its own regulatory authority, offering streamlined processes for company setup. Examples include Dubai Multi Commodities Centre (DMCC) and Jebel Ali Free Zone (JAFZA).
Free zone companies enjoy benefits like zero corporate tax on qualifying income and 100% repatriation of profits. However, their ability to operate outside the free zone is restricted. This limitation often prompts questions about their potential to engage in mainland activities.
What Is the UAE Mainland?
The UAE mainland refers to the economic jurisdiction outside free zones, governed by the Department of Economic Development (DED) of each emirate. Mainland companies have fewer restrictions on where they can operate, allowing them to trade freely within the UAE and internationally. Until recently, mainland setups required a local sponsor, but reforms now allow 100% foreign ownership for many activities.
Mainland businesses benefit from broader market access, including government contracts. However, they face stricter compliance requirements, such as corporate tax obligations.
Key Differences Between Free Zone and Mainland Companies
To understand whether a free zone company can trade in the UAE mainland, it’s essential to compare the two setups:
- Ownership: Free zone companies offer 100% foreign ownership, while mainland companies may require a local sponsor for certain activities, though 100% foreign ownership is now possible in many sectors.
- Market Access: Mainland companies can operate anywhere in the UAE, while free zone companies are typically limited to their zone or international markets.
- Taxation: Free zones offer tax exemptions, while mainland companies face a 9% corporate tax on profits exceeding AED 375,000.
- Visa Quotas: Mainland companies have fewer visa restrictions, while free zone companies are limited to 0-6 visas per license.
Can a Free Zone Company Do Business on the Mainland?
General Restrictions on Free Zone Companies
In general, free zone companies are not permitted to conduct direct business activities on the UAE mainland without specific approvals. Each free zone has its own regulations, but the overarching principle is that free zone entities are confined to trading within their designated zone or internationally. This restriction ensures that mainland businesses, which face stricter compliance, maintain a competitive edge in the local market.
For example, a free zone company cannot open a retail store or offer services directly to mainland customers without proper authorization. Violating these rules can result in fines up to AED 100,000, as per Dubai’s Law No. 13 of 2011.
Exceptions for B2B Transactions
An important exception exists for business-to-business (B2B) transactions. Free zone companies can engage in B2B activities with mainland companies without necessarily establishing a mainland presence. For instance, a free zone trading company can sell goods to a mainland distributor, provided the transaction adheres to UAE customs procedures.
This arrangement allows free zone companies to indirectly access the mainland market through partnerships. However, direct business-to-consumer (B2C) activities, such as retail, require additional steps.
Recent Legal Changes in 2025
A significant development occurred on March 3, 2025, with Dubai’s Executive Council Resolution No. 11 of 2025. This law allows free zone companies to operate on the Dubai mainland under specific conditions, marking a shift from previous restrictions. Businesses can now expand their operations without setting up a separate mainland entity, provided they obtain approval from the Dubai Department of Economy and Tourism (DET).
This change applies to most free zone establishments in Dubai, except financial companies in the Dubai International Financial Centre (DIFC). The DET will publish a list of permitted activities within six months of the law’s enactment, guiding businesses on eligible operations.
Options for Free Zone Companies to Operate on the Mainland
Establishing a Mainland Branch
One way for a free zone company to operate on the mainland is by setting up a branch office. The branch must be registered with the Ministry of Economy and the DED, and it operates under the parent free zone company’s legal identity. This means no local sponsor is required, preserving 100% foreign ownership.
To establish a branch, the following documents are typically needed:
- Corporate documents of the free zone entity, including a notarized resolution for branch opening.
- A power of attorney for the branch’s general manager.
- A bank guarantee of AED 50,000 in favor of the Ministry of Economy.
- Payment of AED 15,000 as Ministry of Economy fees.
The branch must comply with mainland regulations, including tax and auditing requirements, and maintain separate financial records for mainland operations.
Partnering with a Mainland Distributor
Free zone companies can collaborate with a DED-licensed distributor to sell goods or services on the mainland. This approach is common for trading companies, as it avoids the need for a mainland branch. The distributor handles local sales, ensuring compliance with mainland laws.
For example, a free zone company in JAFZA can export goods to a mainland distributor, who then sells them to local retailers. This method is cost-effective and allows free zone companies to tap into the mainland market indirectly.
Setting Up a Civil Work Company
Another option is establishing a civil work company on the mainland, which can be 100% owned by a free zone entity, provided the activities align. A UAE local service agent (LSA) must be appointed, but the LSA holds no stake in the company. This setup is ideal for professional services like consulting or legal firms.
The civil work company must adhere to mainland regulations, including obtaining a DED license. This option suits businesses seeking a formal presence without extensive operational changes.
Obtaining a Temporary Permit
Under the 2025 law, free zone companies can apply for a temporary permit to conduct specific mainland activities. This permit is a cost-effective way to test the mainland market without committing to a full branch. The DET oversees the application process, which requires submitting a business plan and other documents.
Companies already operating on the mainland without proper authorization have until March 2026 to comply with the new law, with the possibility of a one-time extension.
Benefits of Expanding to the Mainland
Access to a Larger Market
Operating on the mainland allows free zone companies to access the UAE’s broader market, including retail and government contracts. This can significantly boost revenue potential, especially for businesses in high-demand sectors like retail, hospitality, or construction.
Mainland operations also enable companies to establish a stronger local presence, enhancing brand visibility. For example, a free zone e-commerce company can use a mainland logistics partner to deliver products directly to UAE customers.
Flexibility in Business Activities
Mainland companies enjoy greater flexibility in the types of activities they can undertake. Unlike free zones, which are often industry-specific, the mainland allows businesses to diversify their offerings. This is particularly beneficial for companies looking to expand beyond their original scope.
For instance, a free zone company specializing in IT services can branch out into training or consultancy services on the mainland, provided they secure the necessary licenses.
Increased Visa Quotas
Mainland companies face fewer restrictions on visa quotas compared to free zone companies, which are typically limited to 0-6 visas per license. This is advantageous for labor-intensive businesses requiring a larger workforce. Employees under free zone visas can work in mainland operations without needing new contracts, provided compliance is maintained.
Steps to Expand a Free Zone Company to the Mainland
To successfully operate on the mainland, free zone companies should follow these steps:
- Assess Business Needs: Determine whether mainland expansion aligns with your business goals, such as accessing new markets or diversifying services.
- Consult the Free Zone Authority: Seek initial approval from your free zone authority to ensure compliance with their regulations.
- Choose the Right Structure: Decide whether to establish a branch, partner with a distributor, or set up a civil work company based on your business model.
- Apply for Approvals: Submit required documents to the DET or DED, including corporate documents, a business plan, and financial guarantees.
- Secure a License: Obtain the necessary mainland license or permit, ensuring all activities comply with the approved list.
- Set Up Operations: Lease office space, hire staff if needed, and establish separate financial records for mainland activities.
- Monitor Compliance: Regularly review tax, auditing, and legal requirements to avoid penalties.
Conclusion with BizInvestFirm
Navigating the complexities of UAE business jurisdictions can be challenging, but the opportunities for growth are immense. The question, Can a free zone company do business on the mainland?, has a promising answer with the 2025 legal reforms, allowing free zone companies to expand into Dubai’s mainland with proper approvals.
Whether through a branch, distributor, or temporary permit, businesses can unlock new markets while retaining free zone benefits. For expert guidance on this process, BizInvestFirm offers tailored solutions to help free zone companies seamlessly expand to the mainland. Their experienced consultants ensure compliance, streamline approvals, and support your business growth. Contact BizInvestFirm today to explore your options and take your business to the next level in the UAE’s vibrant economy.