Mainland vs Free Zone in UAE Federal: Compliance Requirements
Since full foreign ownership reached the mainland, registration turns on market access, regulator and forum rather than on ownership or tax.
Employment, corporate tax, VAT, data protection and commercial dealings run on federal law whichever route you pick, and a free zone licence is not an exemption from corporate tax. What the choice does settle is who registers the company, who you are allowed to sell to, and which court hears a dispute and in what language. It closes with four questions that decide most cases.
Most comparisons of mainland and free zone registration are written as though the two sit under different legal systems. They do not. Federal law reaches into both, and since the ownership rules changed, the list of things that genuinely turn on this choice has become shorter than the marketing suggests. Read at the federal level, the decision settles three questions — who registers your company, where you are allowed to sell, and which court hears a dispute — and leaves most of the rest identical either way.
One federal company law, two routes onto the register
Companies formed outside the free zones are incorporated under the 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. It governs the recognised company forms, share capital, managers' and directors' duties, general assembly procedure and the rules on winding up.
Free zone companies are formed under the registration rules of the zone that hosts them, administered by that zone's own registrar. The federal law remains relevant to them at the edges — where a zone's rules are silent, and where a free zone entity wants to operate outside its zone.
The point that has changed most is ownership. Federal Decree-Law No. 26 of 2020, effective 1 June 2021, removed the requirement for 51% UAE-national ownership of mainland limited liability companies. Full foreign ownership is now available for most mainland activities, subject to a list of activities of strategic impact where conditions still apply. Anything you read that presents the free zones as the only route to owning your own company is describing the position before that change. A local service agent is still required for a branch of a foreign company, but that is a different arrangement and it does not give the agent ownership.
What applies to you either way
The federal obligations below attach to the business, not to the postcode:
| Area | Federal instrument | Effect of the mainland / free zone choice |
|---|---|---|
| Employment | Federal Decree-Law No. 33 of 2021, replacing Federal Law No. 8 of 1980 | Applies in both. The DIFC and ADGM run their own employment regimes. |
| Corporate tax | Federal Decree-Law No. 47 of 2022, for financial years starting on or after 1 June 2023 | Free zone registration is not an exemption from the law. Registration and filing obligations arise either way. |
| VAT | Federal Decree-Law No. 8 of 2017, amended by Federal Decree-Law No. 18 of 2022 | Same 5% regime and the same registration test. |
| Data protection | Federal Decree-Law No. 45 of 2021 | Applies in both. The DIFC and ADGM have separate data regimes. |
| Commercial dealings | Federal Decree-Law No. 50 of 2022, replacing Federal Law No. 18 of 1993 | Governs commercial contracts, agency and negotiable instruments across the country. |
One item can now come off the comparison list altogether. Economic substance reporting was cancelled for financial years ending after 31 December 2022 by Cabinet Decision No. 98 of 2024; obligations survive only for the financial years 2019 to 2022. Any comparison still treating substance filings as a live annual burden on free zone entities is out of date.
The corporate tax point deserves emphasis because it is the one most often misstated in sales material. A free zone licence does not place a company outside Federal Decree-Law No. 47 of 2022. The 0% band up to AED 375,000 of taxable income and 9% above it are federal rules, and any blanket claim that a company is "tax-free" because of where it is registered should be checked against its own figures and its own registration position.
Where the line still decides something
Who you can sell to
This is the real distinction. A mainland licence permits trade throughout the domestic market and, where the activity qualifies, participation in government tendering. A free zone licence permits activity within the zone and outside the UAE. Selling into the domestic market from a free zone generally requires a distributor, an agent, a mainland branch or another arrangement recognised by the licensing authority. If your customers are UAE consumers or UAE government bodies, that is usually the whole analysis.
Which court, and in which language
Mainland disputes go to the local courts of the emirate, which conduct proceedings in Arabic. Most free zones are also served by the courts of their emirate. The DIFC and ADGM are the exceptions: they are common law jurisdictions with their own courts, their own judges and English-language procedure. Arbitration is available to everyone under Federal Law No. 6 of 2018, as amended in 2023, and a DIFC seat can be chosen by parties with no other connection to the DIFC.
Sector regulators sit above both
Registration is not authorisation. Banking, insurance, financial services, healthcare, education, telecommunications and similar activities need approval from the responsible sector regulator, federal or emirate-level, before the licence is issued. Registering in a free zone does not reduce that requirement; in the financial free zones it substitutes a different regulator, the DFSA in the DIFC and the FSRA in ADGM, with its own authorisation process.
Premises, staff and immigration
Both routes tie visa capacity to registered premises, and both require the company's establishment file to match what it actually does. A free zone package that bundles office space and visa allocation is administratively simpler; a mainland licence gives more freedom over where the office is and how the business expands into other emirates.
A short test that settles most cases
- Who pays your invoices — customers inside the UAE, or outside it?
- Does your activity need a sector regulator's approval before anyone will license it?
- If a contract goes wrong, whose court do you want to be in, and in which language?
- Do you need to hold, import, store or distribute goods inside the country?
Answer those four and the registration route usually chooses itself. Where the answers pull in different directions, the workable structure is often both: a free zone entity for the international side and a mainland presence for the domestic side, with intercompany terms that stand up when a tax authority or a counterparty reads them. Our corporate legal services team advises on that choice at formation and on restructuring when a business has outgrown the route it started with.
The choice also has a long tail. Registration determines who your regulator is for the life of the company, what happens when you change activity or shareholders, and what a liquidation looks like. Getting it wrong is rarely fatal, but correcting it later means new licences, new banking, new visas and, sometimes, renegotiated contracts — which is when it becomes a matter for commercial dispute resolution rather than corporate advice.
To discuss the right registration route for a specific business, contact the Nour Attorneys team.
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
