Mainland vs Free Zone in Free Zones: Compliance Requirements

For a business already inside a free zone, or about to be, the useful comparison is not a table of advantages. It is an understanding of what the zone authority is, what it controls, and which obligations follow you in from outside regardless of the licence on the wall. Free zone status changes who you deal with day to day. It changes far less about the law that applies to you than most people are told at the sales stage.

Your registrar, your licensor and your landlord are the same body

This is the defining feature of free zone life. The authority that registers the company also issues its licence, approves its activity, leases it premises, sponsors its employees' residence visas and processes every subsequent change. Outside the zones those functions sit with different departments and, often, different landlords.

The consequences are practical. Licence renewal depends on a current lease with the same authority, and the immigration file depends on both. A disagreement about premises is therefore never only about premises. Unpaid charges of one kind can hold up an approval of another kind, and there is no second desk to go to. When negotiating a lease or a facility agreement inside a zone, it is worth reading it as a licensing document as well as a property one.

The company you actually formed

Free zone entities are usually one of three things: a company with a single shareholder, a company with several, or a branch of an existing company that has no separate legal personality of its own. The first two are formed under the companies regulations of that zone and are administered by its registrar, not by the federal registrar. That is why the paperwork differs between zones — what counts as a valid shareholder resolution, which corporate documents need attestation, whether a corporate shareholder several layers up must be disclosed and evidenced, and how a share transfer is recorded.

The branch option is the one most often chosen for the wrong reasons. A branch is cheaper to establish and simpler to close, but it is not a separate entity: liabilities incurred by the branch are liabilities of the parent. Where the point of the exercise is to ring-fence a new venture, a branch does not do it.

The instrument that actually governs one of these companies, then, is the zone's own body of companies regulations. That is where you look to find what the shareholders may decide, how a resolution has to be passed, and what the registrar will accept when it is filed. The federal Commercial Companies Law, Federal Decree-Law No. 32 of 2021, is not the statute your entity was formed under, and going to it in search of your own constitution is a common false start. It reaches you at two points: where the zone's regulations are silent, and where you take the company outside the zone.

Where the licence lets you trade

Read the licence as a permission with edges. It names the activities, it ties them to the premises you lease from the authority, and it contemplates customers who are either inside the zone with you or abroad. It does not put you on the domestic market. An order from a shop in the emirate next door is not a sale you can simply raise an invoice for; reaching that customer lawfully calls for a separate arrangement, and the authority will tell you which forms of it it recognises. Where goods are involved, the same edge exists physically: taking stock out of the zone crosses a customs line and is handled as an import, not as a movement of your own inventory from one shelf to another.

Two further points are easily missed. The activity list is exhaustive — invoicing for something adjacent to your licensed activity is a licensing breach, not a rounding error. And where the activity is regulated at sector level, such as financial services, healthcare or education, the zone's licence follows the sector regulator's authorisation rather than replacing it.

Federal law comes in with you

The obligations below are not affected by free zone registration:

• Corporate tax. The zone authority neither collects it nor can waive it. Federal Decree-Law No. 47 of 2022 applies for financial years starting on or after 1 June 2023, and the duty to register and to file rests with the company itself. Where a brochure or a sales conversation offers the zone as somewhere "tax-free", that is a proposition to test against your own numbers and your own position under the law, not something the licence confers.
• Data protection. Federal Decree-Law No. 45 of 2021 reaches personal data handled from inside a zone as it does anywhere else. The DIFC and ADGM stand outside it, with data regimes of their own.
• Employment. Contracts and work permits are processed through the zone's own systems, which is why a zone's standard form can read like a self-contained code. It is not one. The entitlements underneath it come from Federal Decree-Law No. 33 of 2021, and no zone template can sit below them. Only the DIFC and ADGM legislate their own employment law.
• VAT. The 5% rate under Federal Decree-Law No. 8 of 2017, as amended by Federal Decree-Law No. 18 of 2022, does not move with the address on the licence, and neither does the point at which a business has to register.
• Beneficial ownership and anti-money-laundering records are maintained through the zone's registrar, but the substance of the obligation is federal.

One long-standing item has gone. Cabinet Decision No. 98 of 2024 cancelled economic substance reporting for financial years ending after 31 December 2022, leaving it alive only for the years 2019 to 2022. A zone authority that once chased its tenants for an annual notification has nothing left to chase. If your entity was filing, the live question is whether those earlier years were closed off properly — not what is due next.

The financial free zones are a different proposition

The DIFC and ADGM are not simply zones with better facilities. They are common law jurisdictions with their own courts, their own civil and commercial legislation and their own financial regulators — the DFSA in the DIFC and the FSRA in ADGM. A company there is subject to a different body of law, not a different administrative process. That is a genuine advantage for some businesses and unnecessary cost for others.

On arbitration, note that the DIFC-LCIA was abolished by Dubai Decree No. 34 of 2021 and its caseload moved to DIAC, while the DIFC remains available as a seat for parties who want it. Clauses copied from older precedents naming the abolished institution should be revisited.

Leaving is harder than arriving

Free zones sell entry well. Exit is the part that surprises people. Closing a licence runs through the same authority and typically requires employee visas to be cancelled, the lease and utilities settled, clearances obtained and the entity formally deregistered. Simply letting a licence lapse is not a closure: charges continue to accrue against the company and its shareholders, and the unresolved file can block later applications. Where the entity has traded, unwinding it also involves creditors, and disagreements at that point become a matter for commercial dispute resolution under whatever forum the contracts named.

Ask these before signing

Which specific activities will appear on the licence, in writing? What are the renewal terms for the licence and the lease, and are they linked? How many visas does the premises support, and what happens when you need more? Is the sector regulator's approval required, and who obtains it? And what is the documented process for closing the entity?

Our corporate legal services team advises on free zone formation, restructuring between zones and the mainland, and deregistration.

Schedule Your Consultation

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