Whether you’re starting a business or thinking of expanding your existing business to Dubai, the main decision you need to take before is to choose the right location to set up the business. As a well-known trading hub of the Middle East and North Africa (MENA) region, Dubai boasts a wealth of benefits for businesses and companies looking to succeed, thrive and connect to the rest of the world.
You generally have three main choices to choose from when establishing your business in Dubai: mainland, free zone or offshore. Each has its own merits and drawbacks with the right choice depending on your business activity performed by your company, intended trading partners, ownership structure and other factors. Let’s deep dive in to check which area is good for your business and why?
Free Zone: Most entrepreneurs who want to save money on taxes choose to establish a free zone since the free zone authorities offer a variety of benefits and incentives to firms that set up shop there.
Mainland : Also known as an onshore corporation. It has been granted a license by the Department of Economic Development (DED) of the relevant emirate, allowing it to operate freely in the local market as well as outside the UAE.
Offshore: An offshore company is one that is incorporated in one jurisdiction but has its parent firm in another. There is no need for a physical office, thus this is not a branch firm. They have no physical presence in the nation in which they have chosen to incorporate as an offshore corporation.
Free Zone Company
Free zones are economic areas where goods and services can be traded, usually with preferential tax and customs rates. By operating in one of Dubai’s 30 free zones, you can enjoy benefits such as 100% foreign ownership as there is no need for a local sponsor or service agent to start a business, 100% corporate tax exemption, 100% repatriation and capital funds. The free zone concept was introduced by the Dubai government to generate foreign interest to set up businesses in the city. However, one of the key limitations of operating a company in a free zone is that you are not allowed to make direct trade with the UAE local market (Mainland).
The cost to set up and run your business in one of Dubai’s free zones varies significantly. Below is a breakdown of the four main fees incurred with Dubai business set up and operations:
- Company Registration Fee
- License Fee
- Office Fee
- Share Capital
Mainland companies (often referred to as an onshore company) benefit by having access to the local market and outside the UAE. To get registered as a Mainland LLC company, you must obtain a license by the Department of Economic Development (DED) of the respective emirate.
Prior to the new UAE laws on commercial company ownership, foreign business owners established as a mainland company in Dubai could only acquire 49% of company shares, leaving the remaining 51% acquired by a local sponsor. However, as of December 1st, 2020, the UAE passed a law to permit 100% foreign ownership for mainland companies. Since the resolution is so new, it is not yet implemented and fully explained.
Also, unlike a free zone or offshore company, mainland companies have a mandatory office space requirement. The minimum office space requirement set by DED is to lease a minimum 200 sq ft office. Virtual offices are not allowed to mainland companies.
There is no visa limitation for a mainland company. The number of residency visas granted is based on the size of leased office space or a business facility. So, the larger the office space, the greater the number of residence visas your company may become eligible for. Generally, it is calculated as one visa per 80 square feet.
Some of the initial costs that business owners can expect when setting up a mainland company are:
- License fee – The DED offers various license options, but the standard trade or service license is typically 5% of the rent. A General Trading license Instant license, Merchant license and launch license doesn’t apply to this
- Initial Approval from DED
- Dubai Chamber of Commerce
- Approval of trade name
- Office rent
- Attestation of Memorandum of Association (MoA)
- Drafting of contract and court agreement attestation
- Registration with Ministry of Economy
- Trade license fee
- UAE local Sponsorship fees depend on the nature of the business
Offshore companies are not entitled to operate any business activity in the UAE directly. However, an offshore company can be a shareholder of any UAE mainland or free zone companies, enabling this entity to enter the UAE market and allow business activities through such subsidiary companies. Which means an offshore company can have full ownership of the company but cannot have a physical presence in the UAE. An offshore company cannot have any physical office in the UAE. Their office must be located outside the country.
Offshore companies are not authorized for issuing a visa. Only mainland and free zone companies in Dubai/ UAE can issue a resident visa.Offshore companies are relatively affordable to set up. Given that they have no minimum requirements for capital deposits before incorporation, no costs associated with office space or obtaining a visa, setting up an offshore company in Dubai is the cheapest option out of the three jurisdictions.
If you want to set up your business, contact Kloudac Global
Call: +971 5043 53515 / +94 777 870 464
KLOUDAC Global is a dedicated expansion of KLOUDAC, a recognized accounting firm with branches in Dubai, London & Colombo with 15 years of service experience. KLOUDAC Global mainly focuses on back office accounting with a whole package of services such as Financial Consultancy, Business setup, Audit and assurance services, Taxation services, Recognized accounting software, and more.