Mainland vs Free Zone Company in Dubai: What Actually Differs
The old reason to choose a free zone — foreign ownership — largely went away in 2021. What remains is a trade-off between where you are allowed to sell, who sponsors your staff, which labour law applies, and how corporate tax treats your income. And free zones are not tax free.
This guide sets the two side by side from what the UAE government and the Federal Tax Authority actually publish, and is explicit about the places where official sources disagree with each other.
Ownership: the difference that closed
u.ae states that “foreigners are allowed to establish companies with 100 per cent full ownership” on the mainland, and that the law “annuls the requirement for commercial companies to have a major Emirati shareholder or agent”. The instrument is Federal Decree-Law No. 26 of 2020, amending Federal Law No. 2 of 2015.
Free zones offer “up to 100 per cent foreign ownership” too. So on ownership alone, the two are now close enough that it should rarely decide the question.
Two qualifications, both from u.ae itself. Dubai excludes “economic activities with a strategic impact, which relate to seven sectors” — named as seven, never listed on the page, so we cannot tell you which they are. And u.ae’s own pages give two different counts of how many mainland activities are open to full foreign ownership, so we are not quoting a number. Check your specific activity with Dubai’s Department of Economy and Tourism rather than relying on a headline figure.
Where you can trade
This is the real division. u.ae states that “a company registered under a respective free zone is not permitted to carry out business outside the free zone, i. e. on the mainland”, and that to extend beyond it “it has to get an initial permission from the respective free zone authority”.
Note what is not published: no official page states positively that a mainland company may trade anywhere in the UAE. It is only inferable from the free-zone restriction, and we would rather say that than dress an inference as a rule.
Who regulates you, and who sponsors your staff
A free zone company is “governed by the free zone authority in which your business is set up”. A mainland company is licensed by DET and its employment sits with MOHRE.
Two consequences that people discover late:
- Sponsorship. u.ae: “free zone employees are sponsored by the respective free zone authority and not by their employer”.
- Labour law. u.ae: “those working in free zones are generally not governed by the UAE Labour Law”.
On the mainland, the number of visas you can obtain is not a fixed allowance. u.ae describes it as a quota where “the ministry will determine the quota according to the legal form of the company, the area of the premises, the projects involved and the demand of the work operation”. Office size is one input among several. For free zones, no equivalent published rule exists on the domains we checked, so ask the specific free zone.
Premises
u.ae states that “all businesses in the UAE must have a physical address to operate”, and that in Dubai “the agreement must be registered with Ejari”. Our guide to Ejari in Dubai covers that registration.
The term “flexi-desk” appears nowhere on the official domains. It is a free zone product name, not a licensing category, and it is not a sound basis for a decision.
Corporate tax: the part most often misstated
Free zones are not tax free. A free zone company is within the scope of Corporate Tax like any other juridical person, and the 0 per cent rate applies only to a Qualifying Free Zone Person’s Qualifying Income.
The Federal Tax Authority’s free zone material states that the regime “allows a Qualifying Free Zone Person to benefit from a 0% Corporate Tax rate on their Qualifying Income”, and that “the other income, which is not Qualifying Income, is subject to Corporate Tax at the standard rate of 9%”.
Then the sting. The FTA also states that “a Qualifying Free Zone Person is not eligible to benefit from the 0% Corporate Tax rate applicable on Taxable Income up to the AED 375,000 threshold”. On non-qualifying income, a QFZP is therefore treated worse than a mainland company, which does get the 0 per cent band up to AED 375,000 before 9 per cent applies above it.
Three more published conditions worth knowing before choosing:
- A QFZP “is a Taxable Person for the purposes of the Corporate Tax Law, even if all its income is Qualifying Income” — so it registers and files either way.
- De minimis: “non-qualifying Revenue must not exceed the lower of AED 5 million or 5% of its total Revenue”.
- Losing the status is sticky — it is lost for that tax period “and the four subsequent Tax Periods”.
On the mainland the rates are the plain ones: u.ae gives “0 per cent for taxable income up to AED 375,000” and “9 per cent for taxable income above AED 375,000”.
Where u.ae and the FTA describe free zone incentives differently — u.ae frames them as available to businesses that do not conduct business on the mainland, while the FTA applies 0 per cent to Qualifying Activities even where the goods or services go to non-free-zone persons — follow the FTA. It is the tax authority. Registration for both taxes is covered in our guides to Corporate Tax registration and VAT registration.
Side by side
| Aspect | Dubai mainland | Free zone |
|---|---|---|
| Foreign ownership | 100% permitted; seven strategic sectors excluded in Dubai | Up to 100% |
| Where you may trade | Not restricted by any published free-zone-style rule | Not outside the free zone without the authority’s permission |
| Regulator | Dubai DET; employment under MOHRE | The free zone authority |
| Staff sponsorship | The employer | The free zone authority |
| Labour law | UAE Labour Law | Generally outside it |
| Visa numbers | MOHRE quota, premises area one factor | Not published; ask the free zone |
| Corporate tax | 0% to AED 375,000, then 9% | 0% on Qualifying Income only; 9% on the rest, with no AED 375,000 band |
Our advice — practical guidance, not a rule
Marked as advice because no official page prescribes it.
- Start from who the customer is, not from the licence. A business selling to UAE companies and consumers is a mainland question; a business selling abroad or within a zone is a free zone question.
- Model the tax before choosing. The free zone 0 per cent rate is conditional, and losing the status runs for four further tax periods.
- Check the specific activity with DET rather than relying on any published count of activities open to full foreign ownership — u.ae’s own pages give two different counts.
- Treat premises as a constraint on headcount rather than an afterthought. MOHRE names the area of the premises as one of the factors in the mainland visa quota.
Our business setup page sets out that service on either route. Figures on this page were checked in September 2026.
Frequently asked questions
Can a foreigner own 100% of a Dubai mainland company?
Yes. u.ae states that foreigners are allowed to establish companies with 100 per cent full ownership, and that the requirement for a major Emirati shareholder or agent is annulled by Federal Decree-Law No. 26 of 2020. Dubai excludes economic activities with a strategic impact in seven sectors, which u.ae names but does not list.
Are free zone companies tax free?
No. A Qualifying Free Zone Person pays 0 per cent on Qualifying Income only; other income is taxed at the standard 9 per cent. The FTA also states that a QFZP is not eligible for the 0 per cent band on taxable income up to AED 375,000 that a mainland company gets.
Can a free zone company sell on the UAE mainland?
Not without permission. u.ae states that a free zone company is not permitted to carry out business outside the free zone, and that extending onto the mainland requires initial permission from the free zone authority.
Who sponsors employees in a free zone?
The free zone authority, not the employer. u.ae also states that those working in free zones are generally not governed by the UAE Labour Law.
How many visas can a mainland company get?
There is no fixed number. MOHRE determines the quota according to the legal form of the company, the area of the premises, the projects involved and the demand of the work operation.
Do I need a physical office?
u.ae states that all businesses in the UAE must have a physical address to operate, and that in Dubai the tenancy agreement must be registered with Ejari.
Does a free zone company still have to register for corporate tax?
Yes. The FTA states that a Qualifying Free Zone Person is a Taxable Person under the Corporate Tax Law even if all of its income is Qualifying Income.