Navigating the UAE Corporate Landscape: Choosing the Right Jurisdiction for Your UAE Company

While setting up a company in the UAE is a quite streamlined process, selecting the optimal jurisdiction requires careful consideration due to the multitude of options available.

With more than 50 jurisdictions, including seven mainland Emirates and more than 45 free zones, it is crucial to understand the key factors influencing this decision.

This blog provides an overview of the key factors to consider when deciding in which jurisdiction to set up a company in the UAE.

Choosing the Right Emirate

• Abu Dhabi: As the largest Emirate and the UAE’s capital, Abu Dhabi hosts federal government offices and it is particularly advantageous for businesses intending to collaborate with the country’s federal government. Abu Dhabi is an aspiring global financial centre, growing innovation hub and leading energy producer, with a strong focus on oil exports and commerce.
• Dubai: Renowned as a dynamic and modern business hub, Dubai offers world-class infrastructure and a business-friendly environment. The city's commitment to supporting startups and minimal bureaucracy make it an ideal choice for companies aiming to start and scale efficiently.
• Northern Emirates: Focused on industries like logistics, manufacturing, real estate and tourism, the Northern Emirates provide opportunities for quick and cost-effective business setups, especially for new market entrants.

Mainland vs. Free Zone

Understanding the nuances between mainland and free zone set-ups is paramount and could have a significant impact on the business. These are the key differences:

• Limitations on conducting activities: Companies operating in the mainland have access to both local and international markets and can conduct business across all emirates. In the free zones, businesses are restricted to operating within the free zone or internationally and may face limitations in dealing with government entities. Some free zones offer dual licenses to operate in both free zones and the mainland using the same business license, without leasing additional office space or having a local shareholder. Such licenses are issued by: D3; DAFZA; DIFC; DMCC; ADGM; ADAFZ; KIZAD; TwoFour54.
• Ownership: All free zone LLCs may have 100% foreign ownership. Unless they are eligible for 100% foreign ownership based on their activities, mainland LLCs may require a local sponsor who must have at least 51% ownership of the company.
• Corporate tax: In free zone jurisdictions, businesses can avail the benefit of a 0% corporate tax regime if they earn qualifying income. Mainland companies are subject to 9% corporate tax for taxable income above AED 375,000. Large multinationals may be subject to higher corporate tax rates, subject to meeting certain criteria.

• Employee quota: Employee quota in the free zones is allocated based on office space. In mainland jurisdictions, the quota allocation depends on multiple criteria including business activities and compliance with all applicable UAE labour regulations.

• Emiratisation: There are no Emiratisation requirements in the free zones. On the mainland, employers with 50 workers or more, regardless of the economic sector, are subject to specific Emiratisation ratios. Effective 1 January 2024, companies with 20-49 employees operating in 14 key economic sectors are also subject to Emiratisation requirements.
• Wage protection system: WPS is an electronic salary transfer system that ensures timely and complete payment of agreed-upon wages. Currently, it is applicable in all mainland jurisdictions and select free zones, such as JAFZA and, most recently, DMCC. 

• Minimum capital requirements: The minimum paid-up capital varies from free zone to free zone and sometimes it depends on the proposed activity. On the mainland, there is no prescribed minimum share capital, but the entity should have adequate capital to achieve the purposes of its incorporation.

Which free zone?

Free zones in the UAE have typically been established to accommodate general or industry-specific activities, including:

• Jebel Ali Free Zone Authority (JAFZA): focused on trade, imports and exports;
• Dubai Airport Free Zone Authority (DAFZA): focused on aviation and logistics; 
• Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM): focused on the financial services industry;
• Dubai Media City (DMC): focused on technology, media and telecommunications;
• Dubai Multi Commodities Centre (DMCC): focused on the commodity trade and services sector; 
• Khalifa Industrial Zone Abu Dhabi (KIZAD): focused on industrial services;
• Hamriyah Free Zone (HFZ): focused on logistics and trading companies; and
• Ras Al Khaimah Free Trade Zone (RAKFTZ), Ajman Free Zone (AFZ) and Fujairah Free Zone (FFZ): focused on an array of general activities.

Assessment

Navigating the landscape of setting up a company in the UAE demands a strategic and informed approach. While the process itself is designed to be relatively straightforward, the critical decision lies in choosing the right jurisdiction based on your business objectives, industry focus and long-term goals. Entrepreneurs should carefully assess their business activities, ownership preferences and tax implications to align with the most suitable jurisdiction.

Moreover, staying abreast of recent developments and regulatory changes is crucial. The UAE, known for its proactive approach to business facilitation, may introduce new initiatives or policies that can impact your company set-up. Keeping a pulse on new requirements is essential for sustained compliance and success.

Need to know more?

For further information on UAE company formation requirements, please contact Senior Manager Elena Caron at [email protected].

This blog was published on 9 February 2024, and due to the circumstances, there are frequent changes. To keep up to date with all the latest updates on global immigration, please subscribe to our alerts and follow us on LinkedIn, X, Facebook and Instagram.