Navigating the Unknown: Mainland or Freezone license

Misha M Chandra
Jul 8
3 min read

Updated: Nov 4

Starting a new business is exciting—but choosing the right licensing structure can feel daunting. The decision between a mainland licence and a free zone licence affects everything from operations and profitability to growth potential. Understanding the differences between these two options empowers entrepreneurs to make informed choices that align with their vision.

Understanding Mainland and Free Zone Licences

Mainland Licence: A mainland licence allows businesses to operate anywhere in the UAE and engage in multiple activities approved by the government. Traditionally, certain sectors—like retail, education, or healthcare—require a local Emirati sponsor. In Dubai, over 30% of newly registered companies rely on local sponsorship.

Freezone Licence: Freezones are designated areas designed to attract foreign investment. Freezone licences offer benefits such as tax advantages, easier setup, and full foreign ownership. In Dubai, free zone companies account for over 40% of total business registrations, reflecting their popularity among international entrepreneurs.

Pros and Cons of Mainland Licences

Advantages

Wider Market Access: Mainland businesses can operate across the UAE, reaching a larger customer base. For example, a restaurant in Dubai can serve both tourists and locals, boosting revenue.
Diverse Business Activities: Mainland licences allow multiple activities, enabling companies to diversify services—for instance, combining import-export and retail operations.
Higher Credibility: Mainland companies often enjoy stronger credibility with clients and partners, which can lead to increased sales and collaborative opportunities.

Disadvantages

Local Sponsorship Requirement: Partnerships with local sponsors may involve profit sharing or management conditions, complicating operations.
Regulatory Complexity: The licensing process can be time-consuming and bureaucratic, potentially delaying business launch.
Higher Costs: Mainland operations, especially in prime areas, can be expensive. For example, office rentals may average AED 100,000 per year, compared to lower free zone rates.

Pros and Cons of Free Zone Licenses

Advantages

100% Foreign Ownership: Entrepreneurs retain full control without needing a local partner.
Tax Benefits: Many free zones offer corporate tax exemptions for up to 15 years, supporting startups in their early years.
Streamlined Setup Process: Establishing a business in a free zone is faster and simpler, often completed within days.

Disadvantages

Limited Market Reach: Freezone companies usually cannot directly trade with the UAE mainland, requiring local distributors to sell products.
Activity Restrictions: Free zones often limit operations to specific sectors, which may hinder flexibility.
Dependence on Local Distributors: Relying on distributors for mainland sales can reduce profit margins and complicate logistics.

Key Considerations for Your Business Setup

When deciding between a mainland or free zone licence, evaluate:

Nature of Business: Will you frequently trade with the mainland? Mainland licences may be more suitable for high local interaction.
Investment Goals: Consider long-term objectives, weighing full ownership and tax benefits against free zone restrictions.
Industry Regulations: Some sectors have specific licensing requirements that influence your decision.
Cost Analysis: Compare setup costs, operational expenses, and tax implications for both licences.
Target Market: Determine how each licence affects access to your intended customer base.

Making Your Decision

Choosing the right licence is a critical step for any entrepreneur entering the UAE market. Both options offer unique advantages and challenges, which can shape your business trajectory.

By carefully analyzing your goals, market dynamics, and financial considerations, you can select the licence that aligns with your vision. Whether you prioritize market access and credibility or tax benefits and ownership, informed planning is the key to long-term success.

With thorough research and strategic decision-making, your business can not only survive but thrive in the UAE’s competitive and dynamic marketplace.