Corporate Compliance in Free Zones vs Mainland: What UAE Businesses Must Know

Synopsis

Choosing between a Free Zone and Mainland company in the UAE isn’t just about location it’s about compliance, control, and commercial reach. With evolving regulations under the Corporate Tax Law, UBO rules, and Economic Substance Regulations, understanding the compliance landscape is essential for sustainable operations and investor confidence.

1. Legal and Regulatory Framework

• Mainland companies are governed by Federal Decree-Law No. 32 of 2021 and licensed by the Department of Economic Development (DED)
• Free Zone entities follow the rules of their respective Free Zone Authorities (FZAs)
• Both are subject to federal laws like the Corporate Tax Law, UBO Regulations, and AML framework

2. Ownership and Licensing

• Mainland: Now allows 100% foreign ownership in most sectors, except those on the Negative List
• Free Zones: Offer guaranteed 100% foreign ownership from day one
• Mainland licenses allow direct access to the UAE market; Free Zone licenses require a local agent for mainland trade

3. Taxation and Economic Substance

• Corporate tax: 9% applies to both Free Zone and Mainland entities exceeding AED 375,000 profit
• Free Zones may enjoy 0% tax on qualifying income
• Economic Substance Regulations apply to relevant activities in both jurisdictions
• VAT: 5% standard rate, with exemptions for certain Free Zone transactions

4. UBO Reporting and Transparency

• All entities must comply with UBO registration under Cabinet Decision No. 58 of 2020
• Failure to comply can lead to penalties and suspension of licenses
• Free Zones and Mainland entities must maintain accurate shareholder records

5. Audits, Record-Keeping, and Operational Requirements

• Mainland companies must conduct annual audits and maintain full accounting records
• Free Zone entities may have relaxed audit requirements depending on the zone
• Visa quotas, office space, and staffing rules vary significantly between jurisdictions

Conclusion

Whether you choose a Free Zone or Mainland setup, corporate compliance in the UAE is no longer optional—it’s strategic. From tax filings to UBO transparency, businesses must align with federal and local regulations to maintain credibility, avoid penalties, and unlock growth. The right jurisdiction depends on your market access needs, operational model, and long-term goals.