Corporate tax, ownership rules, trading restrictions, office requirements, visa quotas, and real costs compared - plus exactly when each structure wins.
Free zones offer 0% corporate tax on qualifying income (as a QFZP), cheaper packages, flexible office options, and privacy - but cannot sell goods directly to the UAE mainland without a distributor. Mainland companies pay 9% corporate tax above AED 375,000, allow unrestricted UAE trading, and are the only option for restaurants, retail, salons, clinics, and government-contract businesses. Since 2020-2021, both allow 100% foreign ownership.
Dubai offers international entrepreneurs two fundamentally different paths to incorporation: a free zone company, registered with one of 45+ free zone authorities (DMCC, IFZA, Meydan, RAKEZ, JAFZA, Dubai South, DIFC, ADGM, and others), or a mainland company, registered with the Dubai Department of Economic Development (DED) or its Abu Dhabi / Sharjah equivalents. The choice shapes everything from your corporate tax rate to which customers you can invoice, which office you must occupy, and how many employees you can sponsor.
Until 2020, the rule was simple: free zones offered 100% foreign ownership but cannot trade onshore, and mainland companies required a 51% Emirati partner but could trade anywhere. That cleanly resolved the decision for most founders. The 2020 Commercial Companies Law amendments changed the landscape by expanding 100% foreign ownership to most mainland activities from June 2021, removing the Emirati-partner requirement for tech, trading, services, consulting, and much of retail.
Then in June 2023, the UAE introduced a 9% federal corporate tax on profits above AED 375,000 - and simultaneously preserved 0% for Qualifying Free Zone Persons (QFZP) on qualifying income. This created the modern split: free zones for tax-optimized activities, mainland for onshore trade. Both structures now allow full foreign ownership. Both require a physical office (though flexi-desk counts in most free zones). And both have grown meaningfully cheaper than they were five years ago.
This guide walks through exactly how to choose, based on your business model, client base, and growth plans.
DMCC, IFZA, Meydan, RAKEZ - 0% QFZP tax on qualifying income
DED LLC - 9% corporate tax above AED 375k, unrestricted UAE trading
| Factor | Free Zone | Mainland |
|---|---|---|
| Formation Cost (Year 1) | AED 12,500-25,000 (USD 3,400-6,800) Winner | AED 15,000-35,000 (USD 4,100-9,500) |
| Corporate Tax | 0% QFZP on qualifying income Winner | 9% above AED 375,000 |
| Personal Income Tax | 0% | 0% |
| Foreign Ownership | 100% (always) Winner | 100% for most activities (since 2021) |
| Local Trading on UAE Mainland | Via distributor only, or services via invoice | Unrestricted Winner |
| Government Contract Eligibility | Limited | Full access Winner |
| Office Requirement | Flexi-desk accepted (AED 6,000-12,000) Winner | Physical office with Ejari (AED 20,000+) |
| Setup Time | 3-10 business days Winner | 5-15 business days |
| Investor Visa Quota | 1-15 depending on package and office | Tied to office size (9 sqm per visa) |
| Activity Flexibility | Constrained to free zone licence types | 2,000+ DED-listed activities Winner |
| Banking Access | Moderate - scrutiny varies by free zone | Stronger - mainland is preferred by UAE banks Winner |
| Shareholder Privacy | Stronger - not public in most free zones Winner | Ownership data held by DED |
| VAT Registration | Mandatory above AED 375k turnover | Mandatory above AED 375k turnover |
| Audit Required | Yes for QFZP claim | Yes above revenue thresholds |
| Best For | Tech, trading export, consulting, holding, crypto, media | Retail, F&B, clinics, salons, construction, local services |
Dubai has more than 30 free zones and the wider UAE has 45+. Each is governed by its own authority, has its own price list, allowable activity list, visa quota formulas, and infrastructure. The practical leaders for international founders in 2026 are: DMCC (Jumeirah Lakes Towers, strongest brand and banking), IFZA (cheapest full-service, good reputation), Meydan Free Zone (lowest cost in central Dubai), RAKEZ (Ras Al Khaimah, cheapest in the UAE), JAFZA (Jebel Ali, logistics and trading), Dubai South (aviation and e-commerce), DIFC (financial services), ADGM (Abu Dhabi financial services).
Each free zone issues its own trade licence, establishment card, and investor/employee visas. Companies are legal persons registered in the free zone's registry. You get an office or flexi-desk in the zone, meet VAT and corporate tax obligations through the UAE Federal Tax Authority, and operate under UAE federal law plus the free zone's internal regulations.
IFZA licence: AED 12,500-14,500 year one, including trade licence, establishment card, and 2-3 investor visa allocations. Meydan Free Zone: AED 12,500-16,000. DMCC: AED 20,000-28,000 plus flexi-desk (AED 8,000-12,000). RAKEZ: AED 11,000-15,000. Add AED 3,750-4,500 per investor visa issued, Emirates ID AED 370, medical exam AED 350. Annual renewal costs run 70-90% of first-year fees. A lean free zone company can cost under AED 15,000 per year in total once established.
A free zone company pays 0% corporate tax on qualifying income if it is a Qualifying Free Zone Person (QFZP). The QFZP criteria are: (1) maintain adequate substance in the free zone (appropriate people, premises, operating expenditure); (2) derive qualifying income under the Cabinet Decision - typically manufacturing, goods trading within and out of free zones, intellectual property in DIFC/ADGM, holding shares, treasury services, services to foreign persons and other free zone persons; (3) comply with the de minimis rule (non-qualifying income must not exceed the lower of 5% of total revenue or AED 5 million); (4) not have elected to be taxed at the standard 9% rate; (5) comply with UAE transfer pricing documentation; (6) file audited financial statements.
Non-qualifying income is taxed at 9%. Failure of the de minimis test or substance test results in loss of QFZP status for five years and full 9% taxation. All free zone companies must register for UAE corporate tax (there is no "opt-out") and file returns even if 0% applies.
A mainland company is registered with the Dubai Department of Economic Development (DED) and can trade anywhere in the UAE without restriction. Since the 2020 Commercial Companies Law amendments, most activities allow 100% foreign ownership - the old 51% Emirati partner requirement applied to some strategic activities (defense, some oil and gas, security), not to tech, consulting, trading, services, or most retail.
Mainland companies are the default for any business that sells directly to UAE consumers or other UAE-based businesses: restaurants, cafes, clinics, dental practices, salons, gyms, boutique retail, construction, logistics, real estate services, and government contractors. They can rent any commercial space in any emirate, hire unlimited staff (subject to visa quota), and bid on government contracts.
DED trade licence: AED 15,000-28,000 depending on activity and business premises. Initial approval: AED 210. Trade name reservation: AED 620-720. Dubai Chamber of Commerce membership: AED 1,200 (mandatory). Office rent: AED 25,000-120,000+ per year depending on location and size (Ejari registration is mandatory). Municipal fees: 5% of annual rent. VAT registration: free. Establishment card: AED 2,000. Add AED 3,750-4,500 per investor visa. Annual renewal runs AED 15,000-30,000 plus office rent.
Mainland companies pay UAE corporate tax at 9% on net taxable income above AED 375,000 - no QFZP treatment is available outside free zones. Below AED 375,000, the rate is 0%. All mainland companies must register for corporate tax and file an annual return within nine months of year-end. VAT of 5% applies on domestic supplies where turnover exceeds AED 375,000 (mandatory registration). There is no corporate tax on capital gains generally, and dividends received from other UAE companies are exempt.
Transfer pricing rules apply to related-party transactions above de minimis thresholds. Personal income tax remains 0% for residents. UAE has signed 140+ double tax treaties that support cross-border profit flows.
The decision is ultimately about where your customers live. If your customers are outside the UAE or other free zone companies, the free zone QFZP regime's 0% corporate tax on qualifying income is an overwhelming advantage - worth the activity-list restrictions and the lack of onshore distribution rights. If your customers walk through a UAE door - to buy a coffee, see a dentist, get their hair cut, or consume a retail experience - mainland is the only practical option. A growing number of entrepreneurs run both: a DMCC free zone holding and services company plus a mainland operating subsidiary for UAE-facing activities.
Yes, for most activities. The UAE amended the Commercial Companies Law in 2020 and expanded 100% foreign ownership of mainland LLCs to the majority of economic activities from 2021 onwards. A small strategic list still requires Emirati ownership, but tech, trading, consulting, services, and most retail are fully foreign-ownable.
Only if they qualify as a Qualifying Free Zone Person (QFZP). QFZP requires adequate substance, qualifying income under the Cabinet Decision, compliance with the de minimis rule (non-qualifying income under the lower of 5% of total revenue or AED 5 million), an annual audit, and UAE transfer pricing compliance. Non-qualifying income is taxed at 9%.
Not directly for physical goods. Free zone companies can invoice mainland UAE clients for services, but distributing goods onto the mainland requires a licensed mainland distributor or agent. This is the main reason retailers, restaurants, and in-person service businesses choose mainland over free zone.
Free zones are cheaper at entry. Meydan, IFZA, and RAKEZ offer all-in packages from AED 12,500 (USD 3,400) including licence and two visa allocations. Mainland DED licences start from AED 15,000-20,000 and real office rent can push total year-one cost to AED 30,000-60,000. Long term, a bookkeeping-only free zone company can run under AED 15,000 per year.
Free zone visa quotas are tied to the office package: flexi-desk typically allows 1-3 visas, 20 sqm office 3-6 visas, 50 sqm office 8-15 visas. Mainland visa quotas are calculated based on office space at roughly 9 sqm per employee visa, with the Ministry of Human Resources approving quota expansions as headcount grows.
You cannot directly convert legal form between jurisdictions, but the practical outcome is achievable. You can keep the free zone company and open a mainland branch, register a dual licence where the free zone supports it (DMCC and Meydan offer dual-licence programmes), or incorporate a separate mainland LLC and transfer operations. Many growing businesses run a free zone holding company with a mainland operating subsidiary.
Use our interactive tools to compare Dubai to other jurisdictions, calculate exact taxes under QFZP and mainland rules, and estimate the true first-year cost of each structure.
