Mainland vs Free Zone in Abu Dhabi: Compliance Requirements
Now that the mainland ownership restriction is gone, an Abu Dhabi free zone licence no longer buys what it once did, and the choice rests on domestic trading rights, the registrar that supervises you and the court that hears a dispute.
Two questions decide an Abu Dhabi structure: which authority issues and supervises the licence, and where the business is allowed to sell. With most mainland activities open to full foreign ownership since 1 June 2021, the comparison now runs on trading rights, forum and supervision, with ADGM applying its own courts, employment and data rules.
Most Abu Dhabi structuring questions come down to two practical points: which authority issues your licence and supervises you afterwards, and where you are actually allowed to sell. Ownership, which used to dominate the conversation, no longer decides it.
Two registration routes, two supervisors
An Abu Dhabi mainland company is licensed by the Abu Dhabi Department of Economic Development (ADDED), with applications, amendments and renewals handled through the TAMM platform. It is incorporated under the federal Commercial Companies Law, Federal Decree-Law No. 32 of 2021, which replaced Federal Law No. 2 of 2015. Disputes go to the Abu Dhabi Courts, applying UAE law in Arabic.
A free zone entity is registered instead by the registrar of the zone it sits in, under that zone's own companies rules and licence categories. Abu Dhabi's zones are not interchangeable. Abu Dhabi Global Market (ADGM) is a common-law jurisdiction with its own courts and its own financial regulator, the Financial Services Regulatory Authority. KEZAD, Masdar City Free Zone and the twofour54 media cluster are conventional free zones aimed at industry, technology and media respectively, each with its own registration authority and its own list of permitted activities.
The first filter is therefore not tax or ownership. It is whether the activity you want to carry on is on the licence list of the zone you like, and whether you are content to litigate in that zone's forum.
Where you are permitted to trade
A mainland licence lets you contract with customers anywhere in the UAE and take premises anywhere in the emirate. A free zone licence is territorially limited: the entity operates from within its zone and sells outside the UAE freely, but selling into the domestic market normally requires a mainland-licensed distributor, agent or a separate mainland presence.
This matters most for two groups. Businesses bidding for work from Abu Dhabi government entities should read the tender conditions early, because procurement terms frequently call for a mainland licence and local registration. Businesses importing goods for onward sale in the UAE should check the customs and distribution position before signing a lease, not after.
Ownership is no longer the dividing line
Investors used to pick a zone for one reason above all: it was the only route to holding the whole of the business, because a mainland limited liability company needed 51% UAE-national ownership. That stopped being the position on 1 June 2021, when Federal Decree-Law No. 26 of 2020 took effect and opened most mainland activities to outright foreign ownership, with conditions retained only for activities on a strategic-impact list. Since the zones now offer nothing on ownership that the mainland withholds, the comparison has moved on to trading rights, forum and supervision. Anyone still being told to take a free zone licence purely to avoid a local partner is being advised on law that has been superseded.
What does not change with the address
Several obligations follow the business regardless of which route it takes, and free zone marketing material does not always make that clear.
Corporate tax
Corporate tax under Federal Decree-Law No. 47 of 2022 applies for financial years starting on or after 1 June 2023, at 0% on taxable income up to AED 375,000 and 9% above that. Registering in a free zone is not in itself an exemption. That law contains a separate treatment for free zone businesses, but it is conditional, and whether a particular entity meets those conditions has to be assessed on its own facts rather than assumed from the address on the licence.
VAT
VAT is charged at 5% under Federal Decree-Law No. 8 of 2017, as amended by Federal Decree-Law No. 18 of 2022, and registration is required once the relevant threshold is met, in a free zone as much as on the mainland. Certain zones are treated as designated zones for VAT, which changes how supplies of goods into and out of the zone are treated. Designation is specific to named areas and should be confirmed for your zone rather than presumed.
Employment and data
The federal employment law, Federal Decree-Law No. 33 of 2021, which replaced Federal Law No. 8 of 1980, governs employment on the mainland and in the conventional free zones. ADGM is the exception in Abu Dhabi: it applies its own employment regulations, administered by ADGM rather than by the Ministry of Human Resources and Emiratisation. The same split applies to personal data. The federal Personal Data Protection Law, Federal Decree-Law No. 45 of 2021, sits behind mainland and free zone operations, while ADGM operates its own data protection regime with its own commissioner.
Anti-money-laundering registration, beneficial ownership filings and audited accounts requirements apply on both sides of the line, with the filing portal differing rather than the substance. One historic difference has fallen away: the Economic Substance Regulations were cancelled for financial years ending after 31 December 2022 by Cabinet Decision No. 98 of 2024, and now bite only on the earlier years from 2019 to 2022.
Comparison at a glance
| Point | Abu Dhabi mainland | Abu Dhabi free zone |
|---|---|---|
| Licensing body | ADDED, via TAMM | Registrar of the individual zone |
| Company law | Federal Decree-Law No. 32 of 2021 | The zone's own companies rules |
| Domestic sales | Direct | Usually through a mainland distributor, agent or branch |
| Courts | Abu Dhabi Courts | Abu Dhabi Courts, except ADGM, which has its own |
| Employment law | Federal Decree-Law No. 33 of 2021 | Same, except ADGM regulations |
| Premises | Anywhere in the emirate | Within the zone |
Mixed structures
The two routes are not exclusive. A common arrangement is a free zone entity holding the regional business, with a mainland branch or a separate mainland company handling UAE customers. It works, but it produces two licences, two sets of renewals, related-party pricing between the entities and a need to keep contracts, invoicing and staff clearly allocated to the right entity. Where documents and payment flows do not match the licences, the exposure shows up in tax reviews and in commercial dispute resolution, when a counterparty argues it contracted with the entity that has no assets.
Before you file
Work backwards from the customer. Identify who will pay you, where they are, and what licence your contracts and tenders will require of you. Then check the activity list, the visa allocation attached to the premises you are taking, and the exit route if the structure has to change later. Restructuring after the licence is issued is possible but rarely cheap.
Our team advises on entity selection, licensing and post-incorporation compliance in Abu Dhabi as part of our corporate legal services, including reviewing whether an existing structure still matches how the business actually trades.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
