Mainland vs Free Zone in Dubai: Compliance Requirements
Ownership no longer separates a mainland company from a free zone one in Dubai; who you may invoice, whose employment rules apply and which registrar's rulebook reads your documents do.
Mainland and free zone put a Dubai company on different registers, with different registrars, different employment rules and a different answer to who it may invoice. This sets out what genuinely differs, why ownership is no longer the dividing line, and what follows a company into a free zone regardless: corporate tax, VAT, data protection and the substance years still open.
The choice between a mainland licence and a free zone licence in Dubai is usually made for commercial reasons — an address, a landlord's terms, a customer who wants you nearby — and only becomes a compliance question later. The two routes put you on different registers, in front of different regulators, with different rules on where you may trade, who may own you, how you employ people and which court hears a dispute. This guide sets out what actually differs, and what applies to you whichever route you take.
Who licenses you, and under which law
A mainland company in Dubai is licensed by the emirate's economic department and registered under the federal Commercial Companies Law, Federal Decree-Law No. 32 of 2021, which came into force on 2 January 2022 and replaced Federal Law No. 2 of 2015. Its provisions on share capital, managers' duties, general assemblies, reserves and the content of the memorandum of association apply to your company as the default position.
A free zone company is registered by the authority of its own zone under that zone's companies regulations. The registrar sits inside the zone, and so do the rules on filings, directors, shareholder meetings and share transfers. Where a zone maintains its own companies regime, you look to those regulations and to your articles first, not to the federal statute.
The practical consequence is unglamorous but expensive to get wrong. Constitutional documents drafted for one register rarely transplant to the other, and it is the registrar's own rulebook that will be applied when a share transfer is presented for registration.
Ownership: what changed, and what did not
The requirement for 51% UAE-national ownership of mainland limited liability companies was removed by Federal Decree-Law No. 26 of 2020, effective 1 June 2021. Foreign investors may hold 100% of a mainland company across most activities, subject to a list of activities of strategic impact where conditions still apply. Free zones offered full foreign ownership before that change, so ownership is no longer the dividing line it once was and should not, by itself, decide the structure.
One older arrangement survives and is regularly confused with the repealed rule. A branch of a foreign company registered on the mainland may still require a local service agent. That agent holds no shares and takes no share of profits; the appointment is a service arrangement recorded in a written contract. If you are told that a mainland structure still needs a national partner holding a majority stake, you are being told about a rule that no longer exists.
Where you may trade
This is the difference that matters most day to day. A mainland licence allows you to contract with customers anywhere in the UAE and to bid for work that requires an onshore licence. A free zone licence authorises activity within the zone and outside the UAE; supplying customers on the mainland from a free zone entity is treated as onshore activity and generally calls for a mainland licence, a branch, or a licensed distributor or agent onshore.
This surfaces in ordinary commercial life rather than in enforcement action: a customer's procurement team asks for a trade licence showing the activity, a tender requires onshore registration, or a permit is refused because the licence does not cover the work being performed. Choose the register around the customers you actually intend to invoice.
Licensing scope
Both regimes license by activity, not by ambition. The activities listed on the licence define what you may lawfully do, what the authority will renew, and often what a bank will accept when it reviews the account. Adding a line of business normally means amending the licence before the first invoice rather than after. Where an activity is separately regulated — financial services, health, education, insurance, legal work — an approval from the competent authority sits on top of the licence either way.
Employment sits in different places
Mainland employment is governed by Federal Decree-Law No. 33 of 2021, which replaced Federal Law No. 8 of 1980, with contracts registered through the federal system and residency sponsored by the mainland entity. Free zone employees are typically engaged under the employment rules of their zone and sponsored by the zone's authority. Where a zone has its own employment regulations, use them. Notice periods, the end-of-service calculation and the termination procedure in a mainland template are not automatically the ones your registrar will apply, and a mismatch tends to be discovered at the worst possible moment, during an exit.
Federal obligations that follow you into a free zone
A free zone address does not switch off federal law. 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. Free zone entities sit within the scope of that federal law; any relief available to them depends on meeting the conditions the law itself sets, not on the address printed on the licence. Statements that a free zone company is simply "tax-free" are wrong, and they should not be relied on when pricing work or drafting a shareholders' agreement.
VAT is charged at 5% under Federal Decree-Law No. 8 of 2017, as amended by Federal Decree-Law No. 18 of 2022, and it attaches to the supply rather than to the register you sit on.
Data protection follows a similar pattern with one carve-out. The federal personal data protection law, Federal Decree-Law No. 45 of 2021, is the general regime, while DIFC and ADGM operate their own data protection regimes with their own regulators. A commercial free zone in Dubai that is not one of those two financial centres will ordinarily look to the federal law.
Economic substance is now largely a closed file. The Economic Substance Regulations were cancelled for financial years ending after 31 December 2022 by Cabinet Decision No. 98 of 2024. Obligations remain for the financial years from 2019 to 2022, so keep those records and deal with any outstanding notification or report for those years instead of assuming the cancellation erased them.
Disputes: which court, which tribunal
Mainland disputes go to the local courts unless the contract provides otherwise. Free zone disputes route according to the zone's own arrangements and the clauses in your contract. Arbitration is available either way under Federal Law No. 6 of 2018, as amended in 2023.
Two changes are worth checking in any template that has been copied forward for a few years. The DIFC-LCIA Arbitration Centre was abolished by Dubai Decree No. 34 of 2021 and its caseload moved to the Dubai International Arbitration Centre, although DIFC remains available as a seat. In Abu Dhabi, ADCCAC was restructured as arbitrateAD from 2024. A clause naming an institution that no longer exists invites a fight about jurisdiction before anyone reaches the merits, and repairing that clause is a common first step in our commercial dispute resolution work.
Choosing between them
Four questions, in order, settle most cases. Who will you invoice, and are they onshore? Does any planned activity need a regulator's approval beyond the licence? Which employment and data rules can your HR and IT teams realistically follow? And where do you want a dispute to land? Answered honestly, they usually point to one register. Where they point both ways, a mainland entity alongside a free zone entity, each doing only what it is licensed to do, is a common and lawful arrangement — it simply has to be documented properly between the two.
Where we can help
Nour Attorneys advises on entity selection, licensing, amendments to constitutional documents and the intercompany contracts that hold a two-entity structure together. If you are choosing a structure, or correcting one that has drifted away from what the licence permits, our corporate legal services team can review the position before it becomes a renewal problem.
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
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