UAE free zone or mainland in 2026: how to choose
Ownership no longer decides it. Corporate tax, the QFZP rules and Dubai's 2025 resolution on mainland branches do. Here is how the two routes compare and which businesses fit which.
Ownership used to decide. It no longer does
For two decades the choice between a UAE free zone and the mainland came down to ownership. Free zones offered 100% foreign ownership; the mainland required an Emirati partner holding 51%. That rule ended in 2021, when the amendments to the commercial companies law, now consolidated in Federal Decree-Law No. 32 of 2021 on Commercial Companies, opened full foreign ownership for the large majority of commercial and industrial activities on the mainland. A short list of strategic activities remains restricted, and some emirates attach conditions, but for most foreign entrants ownership is no longer the deciding factor.
Two other changes then reshaped the decision. Corporate tax, in force since June 2023 under Federal Decree-Law No. 47 of 2022, replaced the old assumption that free zones meant no tax with a more precise rule: 9% for everyone, and 0% only for a free zone company's qualifying income if it meets strict conditions. And in March 2025 Dubai issued Executive Council Resolution No. 11 of 2025, which lets free zone companies operate on the Dubai mainland under a licence or permit, softening the hardest line between the two routes. The question in 2026 is therefore not who can own the company, but where the customers are, how the income will be taxed and what substance the business will actually have.
What each one gives you
| Factor | Free zone | Mainland |
|---|---|---|
| Licensing authority | The free zone authority (for example DMCC, JAFZA, DIFC, ADGM, RAKEZ) | The emirate's economic department (for example Dubai's DET, Abu Dhabi's ADDED) |
| Ownership | 100% foreign | 100% foreign for most activities since 2021 |
| Where you can trade | Within the zone and internationally; mainland only through a distributor, a mainland branch or, in Dubai, a DET licence or permit | Anywhere in the UAE, including government |
| Corporate tax | 0% on qualifying income if all QFZP conditions are met; 9% otherwise | 0% up to AED 375,000, 9% above |
| Customs | Goods can be stored and re-exported duty-free within designated zones | Customs duty on imports into the UAE market |
| Office | Flexi-desk to full premises, depending on the zone and visa count | Physical premises with an Ejari lease usually required |
| Visas | Quota linked to the package and premises | Quota linked to premises size |
| Legal system | UAE law, except in DIFC and ADGM, which apply common law and have their own courts | UAE federal and emirate law, onshore courts |
A bridge to the mainland, with conditions
Published on 3 March 2025, Executive Council Resolution No. 11 of 2025 regulates the conduct of free zone establishments' activities within the Emirate of Dubai. It applies to companies licensed in Dubai's free zones that want to carry on activities outside their zone in mainland Dubai, and it expressly excludes financial establishments licensed in the DIFC. The licensing authority is the Department of Economy and Tourism (DET), and approval from any other regulator responsible for the activity is still required.
| Route under the resolution | What it allows | Fee |
|---|---|---|
| Branch licence | A mainland branch of the free zone company, including a branch operating from the existing free zone premises | AED 10,000 a year, renewable |
| Temporary permit | Specific activities on the mainland for a limited period of up to six months | AED 5,000 |
Separate books
Companies operating on the mainland under the resolution must keep separate financial records for their mainland activities. That matters for corporate tax, because mainland income is generally not qualifying income.
Workforce
Article 8 allows the company to use its free zone-registered employees for mainland activities, which avoids a second visa structure.
Regularisation
Free zone companies already active on the Dubai mainland had one year from 3 March 2025 to regularise, with a possible one-time extension. That window has now closed.
Dubai only
The resolution is a Dubai measure. Other emirates have their own rules, and a free zone company in one emirate trading with customers in another still needs a compliant route.
A mainland branch licence lets you trade on the mainland. It does not make mainland income qualify for the 0% free zone rate. Income from mainland customers is generally non-qualifying and, above the de minimis limit, can cost the whole company its QFZP status. Model the tax before applying for the licence.
Six common cases
Consultancy serving foreign clients
A free zone usually fits: services to non-UAE clients can qualify, costs are lower and licensing is fast. Check that the specific activity is on the qualifying list before assuming 0%.
Trading company selling into the UAE
The mainland usually fits. A free zone trading company selling to UAE customers ends up with mainland income that is taxed at 9% and needs a distribution route anyway.
Re-export and logistics hub
A free zone with customs facilities fits: goods stored in a designated zone and re-exported, with qualifying distribution income if the conditions are met.
Contractor or local services
The mainland fits: government and many private buyers expect a mainland licence, and site work is local by definition.
Regional holding company
A free zone holding entity can fit well, since qualifying holding income can benefit from 0% and participation rules, but substance in the zone still matters.
Financial services
DIFC or ADGM, with their own regulators (DFSA, FSRA), common-law rules and courts, rather than an ordinary free zone or the mainland.
Obligations that follow the licence
Both routes bring the same federal obligations: registration for corporate tax with the Federal Tax Authority, VAT registration once taxable supplies exceed AED 375,000, beneficial ownership records under Cabinet Resolution No. 109 of 2023, anti-money laundering obligations where the activity is designated, and, from 2027, e-invoicing for business-to-business and business-to-government transactions. The difference lies in who licenses you, which rules govern your premises and visas, and which courts hear your disputes.
Disputes follow the platform. Mainland companies and most free zone companies go to the onshore courts of the emirate, or to arbitration if agreed. DIFC and ADGM entities have their own English-language common-law courts, and parties elsewhere can opt into them by contract. Licences on both routes renew annually, and a lapsed licence blocks visas, banking and tax compliance at once.
The same business, two answers
Take an IT consultancy expecting AED 4 million of annual profit, 70% from clients in Europe and the Gulf outside the UAE and 30% from UAE mainland companies. On the mainland, the full profit is taxed under the ordinary rules: 0% on the first AED 375,000 and 9% on the rest, about AED 326,000. In a free zone, the foreign-client income may be qualifying if consultancy for non-UAE clients falls within the qualifying activities and the company has adequate substance in the zone. But the 30% from mainland clients, about AED 1.2 million of profit and likely more in revenue, is non-qualifying and far above the de minimis limit of the lower of AED 5 million or 5% of revenue. The company would fail the test, and the 9% rate would apply to all its income for that year and the following four.
The free zone works for this business only if the mainland revenue is moved into a separate mainland entity, kept within the de minimis limit, or the activity is restructured. That is a structuring decision to make at formation, not after the first tax return.
| Scenario | Approximate corporate tax |
|---|---|
| Mainland company, all income | About AED 326,000 |
| Free zone company that fails QFZP because of mainland revenue | About AED 326,000, with QFZP lost for five tax periods |
| Free zone company for foreign clients plus a separate mainland company for UAE clients | 0% on qualifying income in the free zone company; 9% above AED 375,000 in the mainland company |
What to budget
Free zone packages are typically faster and cheaper to start: licence issuance in about a week in many zones, with a flexi-desk or small office and a visa allocation tied to the package. Mainland setups take somewhat longer because premises with a registered lease are usually required and some activities need approvals from other authorities. Annual renewals, visa costs, audit fees where accounts must be audited, and corporate tax and VAT compliance apply on both routes.
The cheapest licence is rarely the cheapest structure. A free zone package that saves money at formation but forces a second entity a year later, or costs QFZP status, is more expensive than choosing the right route at the start.
Questions we get asked first
Can a foreigner own 100% of a mainland company in the UAE?
Yes, for most commercial and industrial activities since the 2021 reforms consolidated in Federal Decree-Law No. 32 of 2021. A short list of strategic activities remains restricted.
Can a free zone company do business on the mainland?
In Dubai, yes, with a branch licence (AED 10,000 a year) or a temporary permit of up to six months (AED 5,000) from the Department of Economy and Tourism under Executive Council Resolution No. 11 of 2025, keeping separate books. Elsewhere, through a distributor, a mainland branch or the emirate's own rules.
Does a free zone company pay 0% corporate tax?
Only on qualifying income, and only if it meets all Qualifying Free Zone Person conditions. Otherwise it pays 9% on taxable income above AED 375,000, like a mainland company.
Is mainland income from a Dubai branch licence qualifying income?
Generally not. Income from mainland customers is usually non-qualifying, and above the de minimis limit it can cost the company its QFZP status.
Which is better for a consultancy?
For a consultancy serving foreign clients, often a free zone; for one serving UAE mainland companies and government, the mainland. Mixed client bases may need two entities.
Do DIFC and ADGM count as free zones?
They are financial free zones with their own common-law legal systems, regulators and courts, mainly for financial and professional services. Resolution No. 11 of 2025 does not apply to DIFC-licensed financial establishments.
Choose for customers and tax, not for ownership
Ownership no longer separates the routes. Decide by where your customers are, whether your income can genuinely qualify for 0%, and what substance you will have. In Dubai, Resolution No. 11 of 2025 lets free zone companies reach the mainland, but mainland income remains taxable and can cost the 0% rate. Structure it right at formation.
Not sure which route fits?
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This article is general information, current as of 2026, and is not advice for any specific situation. Confirm current rules with the MOIC, the NBR or the relevant authority before acting.