Free Zone vs Mainland in Dubai: Which to Choose (2026)
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Quick answer: The free zone vs mainland choice in Dubai comes down to where your customers are. A mainland company, licensed by the Department of Economy and Tourism (DET), can trade directly with anyone in the UAE, including walk-in shoppers and government buyers. A free zone company, licensed by a free zone authority, trades freely inside its zone and with the rest of the world, but needs a mainland distributor, a mainland branch or a DET licence or permit to sell directly in the Dubai market. Both can be 100% foreign-owned for most activities. Corporate tax, visas, office rules and resale all follow from that first decision.
Last updated 12 November 2026. This is general information, not legal or tax advice. Rules, fees and lists of permitted activities change, so confirm the current position with DET, your free zone authority and the Federal Tax Authority before you commit.
What is the difference between a free zone and a mainland company?
A mainland company is licensed by the economic department of the emirate where it operates. In Dubai that is DET, through the Invest in Dubai platform. A free zone company is licensed by the authority of one particular zone, under that zone’s own regulations. The official UAE government page on running a business in a free zone explains that free zone companies “operate under a different legal framework than mainland businesses, as they are considered outside the UAE mainland jurisdiction”.
That legal line matters more than the brochure differences. It decides where you can sell, which authority approves your licence changes and staff, what kind of premises you need, and how a buyer would later take the business over. Everything else in this guide flows from it.
Free zone vs mainland: side-by-side comparison
The table below summarises the points that come up most often. Each row is drawn from the official sources cited in this guide. Where a figure depends on your zone, activity or premises, the table says so instead of quoting a number.
| Point | Mainland (Dubai) | Free zone |
|---|---|---|
| Licensing authority | DET (Dubai Department of Economy and Tourism) | The authority of the specific free zone |
| Where you can sell | Directly anywhere in the UAE, plus abroad | Inside the zone and internationally; the mainland through a distributor, a mainland branch, or a DET branch licence or permit |
| Foreign ownership | Up to 100% for most activities; strategic-impact activities can carry conditions | 100% foreign ownership |
| Customs on imported goods | Duty applies when goods enter the UAE market | 0% duty on goods imported into the zone or held for re-export; duty applies if goods move into the mainland |
| Corporate tax | 0% on taxable income up to AED 375,000, 9% above | 0% on Qualifying Income for a Qualifying Free Zone Person; 9% on other taxable income |
| Small Business Relief | Available if revenue stays within AED 3 million and other conditions are met | Not available to a Qualifying Free Zone Person |
| VAT | Standard FTA rules and AED 375,000 mandatory threshold | Same FTA rules, except special treatment for some goods in Designated Zones |
| Premises | A physical address suited to the activity, with a registered tenancy contract (Ejari) in Dubai | Office or desk options set by the zone; check what your activity and visa needs require |
| Typical fit | Shops, restaurants, cafés, salons, groceries, clinics, contracting, government tenders | Export and re-export trading, services to overseas clients, holding and IP structures |
Where can each type of company sell?
This is the question to answer first. The UAE government page says free zone companies can import, export and re-export freely, but “to sell goods or services locally, a free zone company must either work through a licensed mainland distributor or establish a mainland branch or company”, and that “direct sales in the mainland are generally not permitted unless the company obtains the required mainland licences or approvals”.
So if your plan is a coffee shop in Al Barsha, a salon in Jumeirah, a supermarket in Deira or a car garage in Al Quoz, the business serves the local public and is normally licensed on the mainland. If your plan is to buy goods in Asia, store them in Jebel Ali and ship them to Africa, a free zone may suit you better, because goods held for re-export are outside the customs territory until they enter the local market.
The 2025 change: free zone companies working in mainland Dubai
Dubai has added a middle route. Executive Council Resolution No. (11) of 2025 lets a free zone establishment operate in the emirate outside its zone if DET issues one of three things:
- a licence to set up a branch in the emirate;
- a licence for a branch operating out of the free zone; or
- a temporary permit to carry out specific activities, valid for up to six months.
Branch licences are valid for one year and renewable. The resolution also requires the company to follow the federal and local rules that apply to the activity, and to keep separate financial records for its mainland activity. It does not apply to financial establishments licensed in the Dubai International Financial Centre.
In its October 2025 announcement, DET said the Free Zone Mainland Operating Permit is open to eligible free zone companies holding a Dubai Unified Licence, is applied for online through Invest in Dubai, costs AED 5,000 for six months (renewable for the same fee), and in its first phase covers non-regulated activities such as technology, consultancy, design, professional services and trading. DET added that mainland revenue under the permit is subject to 9% corporate tax and must be recorded separately. A JAFZA notice adds that only the company manager may apply and that a flexi-desk, business-centre or virtual office in the free zone is not accepted for the permit.
The permit is useful for a consultancy or trading company that wins occasional mainland work. It is not a shortcut for opening a walk-in shop, and it covers Dubai only. Other emirates have their own rules.
Which is better for corporate tax: free zone or mainland?
Many people choose a free zone because they have heard it means “no tax”. Under the UAE corporate tax law, that is only partly true.
For a mainland business, Federal Decree-Law No. 47 of 2022 and its implementing decisions set a 0% rate on taxable income up to AED 375,000 and 9% on taxable income above that. A resident business whose revenue stays at or below AED 3 million in the current and all previous tax periods can elect for Small Business Relief, which treats it as having no taxable income for that period. Check the current end date of the relief with the FTA, because the Ministry of Finance sets it by decision.
For a free zone business, the same law sets 0% on Qualifying Income and 9% on other taxable income, but only for a Qualifying Free Zone Person. The FTA Corporate Tax General Guide lists the conditions:
- derive Qualifying Income;
- maintain adequate substance in the UAE;
- meet the de minimis rule, under which non-qualifying revenue must not exceed 5% of total revenue or AED 5,000,000, whichever is lower;
- not elect to be taxed under the standard regime;
- comply with transfer pricing rules and documentation; and
- prepare and keep audited financial statements.
Three points catch small owners out. First, the FTA guide says a Qualifying Free Zone Person does not get the 0% band on the first AED 375,000 of taxable income that is not Qualifying Income; that income is taxed at 9%. Second, Small Business Relief is not available to a Qualifying Free Zone Person. Third, under Ministerial Decision No. 229 of 2025, a company that fails a condition stops being a Qualifying Free Zone Person from the start of that tax period and for the next four tax periods.
In plain terms: a small free zone company selling mainly to local customers may pay the same 9% as a mainland company on that income, without the AED 375,000 band or Small Business Relief, and with an audit to pay for. Model your expected customer mix with an accountant before choosing on tax grounds. Our guide to UAE corporate tax registration and filing deadlines covers the registration side.
Does VAT change between free zone and mainland?
For most businesses, no. VAT registration is handled by the Federal Tax Authority under the same rules wherever you are licensed, including the AED 375,000 mandatory registration threshold explained in our VAT registration threshold guide. Only certain zones that the Cabinet lists as Designated Zones get special VAT treatment for some supplies of goods. Services, and businesses in free zones that are not Designated Zones, follow the normal rules. Do not assume a free zone address makes you VAT-free.
Who can own a mainland company now?
Until 2021, most mainland companies needed a UAE national to hold 51% of the shares. The UAE Government’s page on full foreign ownership explains that Federal Decree-Law No. 26 of 2020, later consolidated into Federal Decree-Law No. 32 of 2021 on Commercial Companies, allows foreign investors to own up to 100% of most mainland companies and removed the need for a local service agent for branches of foreign companies. The Cabinet can still set conditions, including ownership limits, for activities of “strategic impact”, such as some banking, insurance and security-related activities.
That change removed the main reason many foreign founders used to pick a free zone. Today the ownership question is usually a tie for ordinary trading, food, retail and service businesses, and the decision turns on market access, tax and premises instead.
What about office space, Ejari and visas?
A Dubai mainland licence is tied to a physical address that suits the activity, with the tenancy contract registered through Ejari, the Dubai Land Department system. A shop, restaurant or workshop also needs premises that meet the relevant authority’s rules for that activity, such as municipality and civil defence requirements. Free zones set their own premises options, from desks to warehouses, and the option you pick can affect what you may do and how many staff you can sponsor.
Visas follow the licensing authority. Mainland employers hire through the Ministry of Human Resources and Emiratisation (MoHRE), and residence visas are processed through the immigration authorities. Free zone employers usually apply through their zone authority. The number of visas available normally depends on the premises and package, so ask the authority for its written rule before you sign a lease or package. Some financial free zones, such as DIFC and ADGM, have their own employment laws.
Payroll rules also differ by authority, so read our guide to the Wage Protection System in the UAE before you plan staff costs.
How do I choose between free zone and mainland? A quick checklist
- List your customers. Walk-in residents, local companies or government entities point to mainland. Overseas clients and other free zone companies point to a free zone.
- Check your activity. Find the exact activity on DET’s list and on the free zone’s list. Regulated activities, such as food, health, education and transport, need extra approvals either way.
- Model the tax. Estimate how much revenue would be non-qualifying in a free zone. If it would regularly pass 5% of revenue, the 0% regime may not hold.
- Price the premises. Compare the real lease, fit-out and approvals for a mainland unit with the zone’s package and its visa allowance.
- Plan for growth. If you may later open a shop, bid for government work or sell across emirates, a mainland licence, or a DET branch licence, may save a restructure.
- Think about exit. Buyers of running businesses in Dubai mostly look for trading premises with a valid licence, lease and customer base. Know which authority would approve a future transfer.
- Get advice in writing. Ask DET or the zone authority to confirm the activity, premises and visa rules for your case, and keep the reply.
Should I start a new company or buy a running business?
Choosing a jurisdiction and starting from zero is only one route. Many owners in Dubai buy a business that already has a licence, a registered lease, fit-out, staff and customers. In that case the free zone vs mainland question becomes a due-diligence question: is the licence issued by the right authority for what the business actually does, and can it be transferred to you?
For a mainland shop, restaurant or salon, the usual route is a change of ownership approved by DET, together with a lease transfer or new Ejari and fresh staff and visa arrangements. Our step-by-step guide to buying a business in Dubai and the due diligence checklist for buying a business in the UAE explain those steps. If you are buying the shares of a company rather than its assets, see how to buy a company in Dubai.
For a free zone company, the transfer goes through the zone authority under its own rules. Check that the company’s licence matches the activity, that any mainland trading is covered by the right DET licence or permit, and whether it has kept the audited accounts it would need as a Qualifying Free Zone Person. If you are still weighing up the options, read is it better to buy or start a business in Dubai. You can also work with one of the business brokers listed on BusinessFinder.me.
Which businesses are listed on BusinessFinder.me right now?
If a running business suits you better than a new licence, these listings are live on BusinessFinder.me now. Check each one’s licence authority and activity against the points above.
- Premium luxury Transport Company for Sale in Dubai (Al Mezan Tower, Muhaisnah 4, Muhaisnah,)
- Highly Profitable Women’s Fashion Business for Sale in UAE (Publishing Pavilion Building, Dubai Production City)
- Luxury Automotive Workshop for Sale (DIP) Dubai (Dubai Investments Park 2, Dubai Investments)
- Established Medical Centre & Pharmacy for Sale in Dubailand (Palm Jumeirah, Dubai, UAE)
- Highly Scalable Luxury Car Wash Business for Sale in Dubai (Palm Jumeirah, Dubai, UAE)
- Printer Supplies business for sale in Dubai (Meydan Avenue, Meydan, Dubai, UAE)
Key takeaways
- Choose by market first: mainland for selling directly to the UAE public and government, free zone for international trade and services to overseas or free zone clients.
- Both routes allow 100% foreign ownership for most activities since the Commercial Companies Law reforms.
- A free zone company’s 0% corporate tax applies only to Qualifying Income and only if every Qualifying Free Zone Person condition, including audited accounts and the 5% / AED 5 million de minimis rule, is met.
- Mainland companies get 0% on the first AED 375,000 of taxable income and may qualify for Small Business Relief; Qualifying Free Zone Persons cannot use Small Business Relief.
- Since 2025, Dubai free zone companies can work in mainland Dubai with a DET branch licence or a six-month permit, but a walk-in shop is still normally a mainland business.
- If you buy a running business, check which authority issued the licence and that it covers what the business actually does.
Frequently asked questions
Is a free zone or mainland company better for a small business in Dubai?
It depends on who pays you. If your customers are walk-in residents, local companies or government entities, a mainland licence from the Department of Economy and Tourism (DET) lets you trade directly anywhere in the UAE. If your customers are mostly abroad or in other free zones, a free zone licence can be simpler. The official UAE portal says free zone companies need a mainland distributor, a mainland branch or the required approvals to sell directly in the mainland market.
Can a free zone company open a shop or trade in mainland Dubai?
Not with the free zone licence alone. Under Dubai Executive Council Resolution No. 11 of 2025, a free zone company can get a DET branch licence (valid one year, renewable) or a temporary permit for specific activities (up to six months). DET says the permit costs AED 5,000 for six months, starts with non-regulated activities such as technology, consultancy, design, professional services and trading, and requires a Dubai Unified Licence. A shop or restaurant serving the public is normally set up on the mainland.
Do free zone companies pay corporate tax in the UAE?
They can pay 0%, but only on Qualifying Income and only if they meet every condition to be a Qualifying Free Zone Person: adequate substance, audited financial statements, transfer pricing compliance, not electing into the standard regime, and non-qualifying revenue no higher than 5% of total revenue or AED 5 million, whichever is lower. Other taxable income is taxed at 9%. Mainland companies pay 0% on taxable income up to AED 375,000 and 9% above it.
Can a foreigner own 100% of a mainland company in Dubai?
For most activities, yes. The UAE Government explains that Federal Decree-Law No. 26 of 2020, later consolidated into Federal Decree-Law No. 32 of 2021 on Commercial Companies, removed the old requirement for a 51% Emirati shareholder for most activities. Activities of strategic impact, such as some banking, insurance and defence-related activities, can still carry ownership conditions.
Is VAT different in a free zone?
Usually not. VAT registration follows the same Federal Tax Authority rules, including the AED 375,000 mandatory threshold. Only certain Designated Zones get special VAT treatment for some supplies of goods, so check the zone’s status with the FTA rather than assuming a free zone is VAT-free.
When I buy a running business, does it matter whether it is mainland or free zone?
Yes. The licence jurisdiction decides who approves the transfer, where the business may legally trade, which visas and lease it relies on, and how its profit is taxed. A free zone company being run as a walk-in shop in the mainland, for example, needs the right DET licence or permit. Check the licence, the authority and the activity before you agree a price.