Free zone or mainland?
Choose mainland if you need to sell freely to customers inside the UAE. Choose a free zone if your customers are outside the UAE or in other free zones, where the 0% Corporate Tax rate on qualifying income may be available. The deciding factor is who your customers are, not setup cost.
Choose mainland if you need to sell freely to customers inside the UAE. Choose a free zone if your customers are outside the UAE or in other free zones, where the 0% Corporate Tax rate on qualifying income may be available. The deciding factor is who your customers are, not setup cost.
| Mainland | Free zone | |
|---|---|---|
| Selling onshore in the UAE | Unrestricted | Possible, but generally non-qualifying revenue for Corporate Tax |
| Corporate Tax | 0% to AED 375,000, then 9% | Same — unless QFZP conditions are met, giving 0% on qualifying income |
| VAT | Identical — federal | Identical — federal (designated zones affect goods movements only) |
| Audit | Generally required under the Commercial Companies Law | Required by many zones for renewal, and mandatory for QFZP status |
| Setup and running cost | Usually higher | Often lower, varying widely by zone |
| Taking a mall retail unit | The normal route | Generally not the right structure |
The trap
Choosing a free zone for its setup cost and then trading onshore anyway. Revenue from mainland customers is generally non-qualifying, and non-qualifying revenue must stay within the de minimis limits or QFZP status is lost — for that period and the following four. Businesses do this without realising, then discover the position at year end when it is far too late to restructure the year's sales.
What does not differ
Tax. Corporate Tax, VAT and excise are federal, so rates, thresholds, rules and deadlines are identical in every emirate and every free zone. What genuinely differs is licensing cost, facility cost, renewal and audit requirements, and — for free zone entities only — whether the 0% rate is available at all. Any advice implying a federal tax advantage to a particular emirate should be treated with caution.
The structuring choice itself is legal work and sits with Neo Legal. What we do is model the numbers behind it — what each structure costs to run, what the tax position actually looks like at your revenue mix, and what the compliance burden is in practice.
Reviewed 18 August 2026 by Ahmed Nabil Selim. UAE tax rates, thresholds and deadlines change — confirm the position for your period before relying on it.
Free Zone vs Mainland UAE — frequently asked questions
No. Free zone entities are within the Corporate Tax regime and must register and file. A Qualifying Free Zone Person can apply 0% to qualifying income, but only by meeting every condition — adequate substance, qualifying income as defined, non-qualifying revenue within the de minimis limits, transfer pricing compliance and audited financial statements. Non-qualifying income is taxed at the standard rates.
Commercially there are established routes, but for Corporate Tax purposes revenue from mainland customers is generally non-qualifying and counts against the de minimis limits. Exceeding those limits costs QFZP status for that period and the following four — meaning 9% on all taxable income, not just the mainland portion. Mainland sales are possible but need monitoring against the limits monthly rather than reviewing at year end.
Usually a free zone, on licence and facility cost — but the gap varies enormously between zones, and the cheapest licence is not the cheapest structure if it forces workarounds later or costs you the tax position you set it up for. Model the full annual cost including licence, facility, visas, audit and accounting, against the tax outcome at your realistic revenue mix.
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