There are three incorporation choices in the UAE – mainland, free-zone, and offshore.

• Mainland companies are primarily used for conducting business within the UAE. However, mainland entities are also freely allowed to transact business within or outside the UAE (including with the free zones in the UAE). It is possible to incorporate in mainland UAE as a Limited Liability Company (LLC), branch, or representative office of a foreign company. A range of activities from manufacturing, trading, and professional services can be carried out on the mainland.
• Free Zone companies are meant for conducting business within the free zone, between free zones, or outside the UAE. These companies can do business in the mainland through an authorized distributor (B2B). There are various free zones in the UAE that may be chosen for their tax-free status and 100% foreign ownership attraction. Certain zones are meant for a specific type of activity.
• Offshore companies cannot conduct business within the UAE. However, they can conduct international business outside the UAE. Offshore companies may be formed in a few UAE-based free zones like the Jebel Ali Free Zone (JAFZ), Ras Al Khaimah International Corporate Centre (RAKICC), and Ajman Free Zone. Modeledafter the International Business Companies in popular offshore jurisdictions like the British Virgin Islands, Isle of Man, etc.

Yes, it is relevant. Generally, LLCs are used for carrying on commercial activities like trading or manufacturing within the UAE. Branch offices are considered extensions of their parent companies and are allowed to carry out activities similar to those of their parent entity (subject to local activity definitions and other restrictions). Representative offices are cost centers that are meant to serve as liaison offices for their parent company.

A Limited Liability Company (LLC) is a corporate structure with a separate and distinct legal entity. The primary advantage of an LLC structure is that the liabilities of the company, (whether arising in contract or otherwise) are the company’s liabilities and not the personal liabilities of the Shareholders. Equally, the company’s assets belong to the company and are not the personal assets of the Shareholders.

Most Free Zones in the UAE are specific activity hubs. For e.g., Jebel Ali Free Zone in Dubai is popular as a trading and manufacturing hub, as well as, for entities requiring the use of port facilities for international trade; Dubai Multi Commodities Centre is popular among commodity trading entities and jewelry businesses, etc.

Offshore companies in JAFZ are used as special-purpose vehicles for investing in real estate in Dubai. RAKICC companies are popular as international holding companies.

Free zones were designed to encourage foreign investment in the UAE. To provide an easier start-up process and assistance with labor and immigration procedures but importantly, with 100% ownership for any nationality. As each free zone has its own Authority which governs that particular zone, each comes with its own and Rules & Regulations.

A free zone located in the United Arab Emirates is a geographical area in which business is conducted without the taxes or restrictions normally applied to foreign businesses. It is an area where goods can be cleared, handled, manufactured, reconfigured, and re-exported without payment of customs duties and import and export taxes.

As a free-zone company, you also have the benefit of 100% repatriation of revenue and profits back to your home country which is particularly attractive to foreign investors and business owners in the region.

A mainland company is an onshore company licensed by the Economic Development Department of the respective emirate, which is permitted to do business in the local market as well as outside UAE without any restriction.

There are various structures available for the mainland set up viz., LLC, civil company, sole proprietary, a branch of a foreign company, etc.

Shareholders can be either individuals or corporate depending on the structure chosen. The number of shareholders/ shall depend on the structure chosen. In the case of an LLC the number of partners shall be at least two (2) but shall not exceed fifty (50). A single natural or corporate person [UAE or GCC national], may incorporate and hold an LLC.

Corporation tax will be introduced in the United Arab Emirates in June 2023:

• However, corporate tax will not apply to companies operating within a free zone, between free zones, or with companies overseas. 

• Also, individuals operating as freelancers would be subject to corporate tax if they exceed AED 375,000 in turnover, as they will not be salaried, and their earnings would be considered business earnings.

• Salaried individuals across the UAE benefit from 0% personal income tax.

Trading companies registered within a free zone are permitted to carry out trading activities with companies within that particular free zone or overseas, outside the UAE. If a company intends to tender or perform business with any UAE-based government entities or local companies they will be required to establish a local branch office or transact through a local commercial agent, licensed by Dubai’s Economic Department.

If free-zone companies wish to trade physical products within the UAE, known as “onshore” or the “mainland” they can do so directly via a local distributor- a locally established company that has an import/export license issued by Dubai’s Economic Department who will be assigned to clear any goods through UAE customs on your behalf.

Service and on-line based business activities can be performed outside.

Customs duty will depend on the business operations. A free zone is considered outside of the customs territory. However, although free-zone companies are still subject to customs controls, the usual customs procedures do not apply to free-zone companies.

Goods may enter a free zone without paying customs taxes or ‘duties’, however, goods exiting the free zone into the UAE local market shall be treated as foreign goods and shall therefore be subject to customs duty levied as follows: 

• General Goods and Commodities: 5%

• Alcoholic Beverages: 50%

• Cigarettes, Tobacco & derivatives thereof: 100%

Goods located in a free zone shall not be subject to any duties for as long as they remain therein. However, when leaving a gated (or bonded) free zone, the goods will be inspected and examined, and a customs declaration is issued. The goods can then leave the free zone, providing that an original detailed invoice is produced. However, for non-gated (non-bonded) free zones, this process is more difficult to follow and can end up causing complications later down the line, if not handled correctly.

One must request a custom code from the free zone authorities issued to all ports in UAE, to grant the import or export of goods by following the procedures of respective Port & Customs authorities.