Can you do business in mainland with a free zone license?

Free zones in the UAE offer entrepreneurs attractive benefits – 100% foreign ownership, 0% tax on qualifying income, and streamlined setup – but they come with trade-offs. Companies based in a free zone can generally export goods and serve international clients, yet cannot directly sell in the UAE market without special arrangements. Until recently, free zone firms needed a local distributor or separate mainland license to reach Emirati customers. In 2026 the landscape has shifted. Key reforms now allow free zone entities to do onshore business if they obtain the proper approvals. In short: Can a free zone company legally conduct business on the UAE mainland? The answer is yes, with conditions. Thanks to new laws (federal and emirate-level), a free zone company can set up mainland branches or apply for an operating permit – but only through the designated licensing routes.

Free zones were created as special economic jurisdictions regulated by their own authorities. There are over 40 free zones across the UAE (e.g. DMCC for trading, Dubai Internet City for tech, JAFZA for logistics, DIFC/ADGM for finance, and RAKEZ in Ras al Khaimah). Within each zone, foreign investors enjoy 100% ownership and can repatriate profits freely. Qualifying free zone companies historically paid 0% corporate tax as long as they met substance requirements; otherwise, they face the standard 9% rate. Free zones also exempt residents from customs duties on goods moving in and out of the zone, and they offer fast visa processing. However, by design free zone licenses are limited to operating inside the zone (or outside the UAE) and are governed by the free zone authority instead of the local economy ministry.

Free-zone firms typically incorporate as Free Zone Establishments (FZE) or Free Zone Companies (FZ-LLC) with no UAE national partner. A free zone license outlines permitted activities (e.g. trading, consulting, IT services, manufacturing) and may include a flexi-desk or warehouse in the zone. Within that remit, a free zone company can perform international business (like import/export), cross-border services, consulting, digital and e-commerce operations, and B2B sales to overseas clients. For example, an IT consultancy in a Dubai tech free zone can serve global clients remotely without needing any local license. Many creative firms (marketing, design, fintech startups) and traders find free zones ideal because their customers are abroad. Conversely, any purely local sales or UAE-based retail is generally outside a free zone license’s scope – that used to require an onshore partner or arrangement.

What activities are allowed in a free zone? Broadly, free zone companies can carry out any activities listed on their license, as long as those activities are permitted by the free zone authority. Common free zone activities include international trade, software development, consulting, professional services, digital media, and e-commerce. In practice this means a free zone firm can ship goods between its zone warehouse and other countries, provide IT or consulting services to clients anywhere in the world, or run online stores with international delivery. Many free zones even tailor packages for e-commerce merchants, allowing them to import goods into the zone and sell them online.

However, these activities do not automatically include local onshore operations. By default, selling goods directly to UAE customers or opening a shop on a Dubai street is not covered by a free zone license. For example, a furniture wholesaler in the free zone must still appoint a UAE-based distributor or pay import duties before selling to local retailers. Similarly, a free zone accounting firm can advise Dubai clients over video call, but if it wants an onshore office for face-to-face services, it needs a mainland license. The key distinction is geographic scope: free zones cater to export and international business, whereas mainland licenses cover the local UAE market.

Can a Free Zone Company Trade Directly in Mainland UAE?

Historically, no – a free zone company could not operate on the mainland without a local partner, branch, or distributor. Under old rules, free zone firms were considered foreign entities within UAE law. They could invoice and service mainland clients (especially for intangibles like software or consultancy), but physically selling products or handling local transactions required a local agent. Similarly, government contracts were out of reach unless executed through a mainland entity.

That situation has changed with recent legal reforms. In Dubai, Executive Council Resolution No. (11) of 2025 creates a new pathway for free zone companies to work onshore. Under this resolution, any entity licensed by a Dubai free zone authority (except DIFC banks) “may now conduct business outside the free zone…provided it secures the necessary licences or permits from the Dubai Department of Economy and Tourism (DET)”. In practical terms, Dubai free zone firms can:

• Establish a Mainland Branch: Obtain a branch license from DET that extends the free zone company to Dubai’s mainland. This branch operates under the same company name and shareholders as the free zone entity. (Fees are about AED 10,000/year for a branch license.)
• Obtain a Dual Licence: Keep the company in the free zone but apply for a “dual license” that allows it to carry out approved mainland business activities while using a mainland office. The Abu Dhabi Dual Licence model is one example (see below).
• Apply for a Mainland Operating Permit: Use a short-term (six-month, renewable) permit to perform specific activities onshore. Dubai’s Free Zone Mainland Operating Permit, launched in late 2025, costs AED 5,000 and initially covers non-regulated activities like consulting, tech services, and trading.

For Abu Dhabi and other emirates, similar changes apply. Abu Dhabi’s Economic Department (ADDED) now allows free zone companies from anywhere in the UAE to open branches in Abu Dhabi without leasing an office in the first year. AD’s online Dual Licence scheme (via ADRA) offers free zone businesses the ability to activate an onshore license in Abu Dhabi for as little as AED 1,200 (covering up to 6 activities). Northern emirates like Ras al Khaimah and Sharjah have not announced identical programs yet, but operators in those free zones may partner with local agents or use Dubai/Abu Dhabi mechanisms.

In all cases, the new branch or permit must be approved by both the free zone regulator and the local economy department. Companies must also comply with mainland regulations (e.g. appoint a local auditor, file onshore taxes, abide by mainland labor laws) and keep separate financial records for UAE revenue. Under federal corporate tax rules, the branch’s onshore income is generally taxed at 9% (after the AED 375,000 allowance) even if the parent free zone is a Qualifying Free Zone Person.

To summarize: a free zone company can trade on the mainland only if it converts part of its operation to a licensed onshore presence (branch, dual license, or permit). Without these approvals, direct sales to UAE customers remain legally unlicensed. Table 1 (below) compares the practical differences between free zone and mainland setups.

Scenarios for Free Zone Companies on the Mainland

Providing Services to Mainland Clients

Free zone companies frequently provide services to UAE mainland clients without relocating. For example, a Dubai Internet City consultancy can legally advise a Dubai hotel or Abu Dhabi corporate office, billing under its free zone license. Recent updates explicitly permit this in a formal way: Gulf News notes that “free zone and financial free zone companies are now allowed to set up branches or representative offices on the mainland, subject to licensing approval,” which specifically helps consultancies, tech firms and holding companies serve UAE clients. In practice, many creative and professional services firms use digital tools to deliver work, with only minimal onshore footprint. The new branch licenses and operating permits simply formalize what was already common – they ensure such activities are fully compliant with UAE law.

E-commerce Sales into the UAE: A growing number of free zone businesses operate online stores targeting UAE consumers. For instance, a free zone retailer (even based in Ras Al Khaimah or Fujairah) can sell products through Amazon.ae or local courier services. Under the new rules, a free-zone e-commerce vendor can open a mainland branch or appoint an agent to manage local shipments and payments. The Dubai Operating Permit expressly covers “trading” and “online marketplace” services, signaling official support. Practically, however, these companies must handle UAE customs and VAT: goods shipped from the free zone into Dubai are subject to standard import duties and 5% VAT. Some entrepreneurs use onshore fulfilment centers or local distributors to streamline logistics.

B2B Service Contracts: Free-zone entities have long executed B2B contracts with onshore companies. Now those contracts can simply fall under the dual license or branch. For example, a Sharjah Media City (SHAMS) IT startup can directly service a Dewa project or an ADNOC tender through its new Abu Dhabi branch without changing corporate identity. In effect, the free zone company “carries” its original contract into the mainland via its approved presence. The key point is that professional or business services (marketing, architecture, accounting, etc.) typically qualify as permitted onshore activities, so these firms can legally sign onshore clients under the expanded framework.

When Additional Approvals Are Required

Certain business sectors still demand special permissions, even with a branch license or permit. If your free-zone activity is regulated by another authority, you will need that regulator’s approval for onshore operations. For example:

• Financial services: Banks, insurance companies, asset managers or crypto firms generally require Central Bank, SCA, ADGM, or DIFC approval beyond the free zone license. A branch of a JAFZA fintech company would still need UAE banking clearance to take local deposits or issue cards.
• Healthcare and education: Medical clinics, pharmacies, or tutoring centers must obtain DHA/KHDA approvals to treat UAE patients or students onshore.
• Defense, security, aviation: These usually need Ministry or military clearance for contracts with the government.
• Commercial agencies and distribution: If your free zone company manufactures or imports goods, appointing a local agent (under Federal Commercial Agencies Law) often requires a formal agent agreement and Ministry of Economy registration.

Likewise, local permits apply for certain activities: trading in Dubai’s traditional Souks requires a separate permit, and onshore transportation or construction firms must secure civil defense or municipality licenses. In short, the new branch/permit structure does not override existing regulatory approvals. Any activity that mandates mainland licensing (like operating a travel agency, real estate brokerage, or security services) will still follow the usual approval routes.

Opening a Mainland Branch

A common strategy is to establish a branch office on the mainland. This branch is not a new company but an extension of the free zone company. Under Dubai’s new regime, a free-zone business can apply for a Dubai branch licence from DET, subject to approvals by its free zone authority. The branch is then registered in Dubai with the same owner/shareholder structure and trade name. Similar rules apply in Abu Dhabi via ADRA’s Dual Licence.

Eligibility and process: The free zone license must be active and all free-zone dues paid. The company typically needs a No-Objection Certificate (NOC) from its free zone authority and any required local clearances. In practice, a free zone FZE or FZ-LLC sponsors the branch, and a branch manager is appointed. Any physical offices or signage still require landlord Ejari registration in the mainland city.

Advantages: By branching, the company gains official permission to work onshore under its existing brand. It can open offices in Dubai or Abu Dhabi, enter joint ventures with mainland firms, and participate in UAE tenders. The branch can use the parent company’s existing staff (registered in the free zone) without having to hire new local employees, preserving workforce continuity. Crucially, the free zone company retains 100% ownership – no Emirati partner is needed under the new laws.

Limitations: The branch license is typically annual and must be renewed (fees approx. AED 10,000/year in Dubai). It does not create a separate legal entity, so the parent company remains liable. Visa quotas for branches may be limited compared to a fresh mainland LLC. Also, the branch can only conduct the activities explicitly approved in its license; expanding beyond those requires amendments. Finally, once onshore revenue exceeds AED 375,000, the branch’s earnings will be taxed at 9% (unless a QFZP exemption still applies).

Appointing Distributors and Agents

An alternative to licensing is using UAE-based distributors or commercial agents. In this model, the free zone company authorizes a local partner (often an Emirati-owned firm) to sell products or represent services in the UAE. The distributor holds the onshore trade license and handles customs, marketing and sales under its name. This approach bypasses the need for the free-zone company to obtain a mainland license at all.

Advantages: A local distributor already has market connections and can quickly reach retail channels and end consumers. There is no requirement for the foreign company to lease office space or sponsor visas onshore. It’s often used in sectors like manufacturing or wholesale goods, where profits are earned by selling to the distributor.

Disadvantages: You surrender some control – the distributor takes a margin and maintains the customer relationship. UAE commercial agency law also heavily regulates this setup: specific categories of goods (e.g. oilfield equipment, consumer products) require a formal agency contract registered with the Ministry of Economy, and one cannot easily terminate the agent without compensation. Therefore, while distribution agreements are commonplace, entrepreneurs should negotiate carefully and ensure compliance.

Free Zone vs Mainland: Operational Comparison

Common Misconceptions

• Myth: “Free zone companies cannot have any mainland customers.”
  Fact: Free zone firms can serve UAE clients, especially for services. New legislation even allows them to bid on UAE contracts once they obtain a branch license or permit. The old prohibition no longer means the free zone co is barred from working with onshore clients; it just requires using the new onshore approval channels.
  
• Myth: “You must convert to a mainland company to grow your business.”
  Fact: Conversion is one option, but not the only one. Entrepreneurs can now obtain a dual license or branch while keeping the free zone entity. For example, an AD free zone FZE can add Abu Dhabi dual licensure with 100% ownership and continue benefiting from free zone incentives. It’s not always necessary to liquidate your free-zone company to gain mainland access.
  
• Myth: “Free zone businesses cannot earn revenue in the UAE.”
  Fact: This is outdated. Free zone companies can invoice and collect fees for work done in the UAE. In practice, this revenue is taxed (at 9%) or counted toward the company’s QFZP status, but it can be earned legally. With the new permit system, that UAE revenue is explicitly recognized under law.
  
• Myth: “A free zone company can never bid on local projects.”
  Fact: With the new framework, free zone companies can bid for mainland projects by using their branch or dual license. Previously, free zone firms were excluded from public tenders, but now a licensed branch is treated like any mainland contractor.
  
• Myth: “All free zones have the same mainland restrictions.”
  Fact: Rules vary. Some zones (like the DIFC or ADGM) have their own laws, others (like Ajman’s or Umm Al Quwain’s) may have bilateral agreements. The new Dubai and Abu Dhabi policies specifically refer to their zones. Always check the specific zone’s rules and the host emirate’s guidelines.
  
• Myth: “Free zone companies never pay tax.”
  Fact: Only “qualifying free zone persons” who meet substance and trade tests pay 0% corp tax on qualifying income. If a free zone company’s onshore branch earns revenue, that portion is taxable at 9%. Also, free zone companies with UAE-sourced income lose the 0% benefit if they fail the QFZP tests.

Industries Suited for Free Zone Structures

Free zone jurisdictions are ideal for businesses focused on export, specialized industries, or international services. Typical examples include:

• Technology Startups: SaaS, software development, IT services, fintech. Many tech companies use Dubai Internet City, Dubai Multi Commodities Centre (DMCC) or Abu Dhabi’s Hub71. They sell globally, while enjoying free-zone R&D incentives.
  
• Consulting & Professional Services: Management consultants, legal advisers, marketing agencies, accounting firms. These businesses often serve clients across borders and require minimal local inventory, making free zones convenient.
  
• Digital Agencies & Media: Creative studios, content producers, advertising agencies. Free zones like twofour54 (media city) allow these firms to own 100% and work with international clients.
  
• E-commerce & Trading: Online retailers and import-export merchants. Free zone e-commerce permits (e.g. RAK Free Zone’s online license) enable selling products worldwide. Commodity traders often use Jebel Ali (JAFZA) or DMCC for tax-free storage and handling.
  
• Holding & Investment Companies: Holding firms, family offices, and investment funds. ADGM and DIFC (both free zones) are especially popular for funds and holding entities due to their English common law framework. They invest internationally and repatriate dividends tax-free.
  
• Logistics and Shipping: Warehousing and freight firms based in Jebel Ali or Abu Dhabi Ports zones. These leverage duty exemptions and proximity to ports for global distribution.
  
• International Services: Call centers, educational services, and medical tourism consultancies. If their clientele is largely foreign or mobile, they can base in a free zone health or education cluster.

In general, any enterprise whose main customers are outside the UAE or who need a global base (and who do not depend primarily on local physical distribution) tends to thrive in a free zone environment.

When a Mainland License May Be Better

Despite free-zone perks, certain businesses need a mainland presence from the start:

• Retail Stores & Restaurants: Any business selling directly to the public (shops, supermarkets, cafes, salons, etc.) must be onshore. They rely on foot traffic and municipal approvals (health permits, civil defense, etc.) that only mainland licenses provide.
  
• Local Manufacturing & Construction: Construction companies, building material suppliers, and local manufacturers typically require mainland licensing and often Emirati partners (unless in a zone like KIZAD with specific approvals). This is because they deal with local regulators, contractors, and labor rules.
  
• Logistics/Transportation: Freight forwarding, taxi companies, private chauffeur services, and trucking need mainland transport permits and licenses.
  
• Government Contracting: Firms that want to bid for major public infrastructure, defense, or local utilities contracts will find it easier with a mainland status or subsidiary, as these projects often require local incorporation.
  
• Essential Services: Healthcare clinics, legal practices (non-free-zone legal licensing), education centers – these usually must be onshore to get local accreditation.
  
• Real Estate & Brokerage: Agencies and brokers dealing in UAE property must have a local license (there is no free zone for general property dealings).

In each of these cases, the “remote-global” model of a free zone is ill-suited. The mainland license grants full access and trust in the local market, at the cost of more stringent regulation and typically a local sponsor fee.

Choosing the Right Structure Before Incorporation

Deciding between free zone and mainland should be strategic, not just cost-driven. Consider your business model and growth plan carefully:

• Customer Base: If most customers will be local, or you foresee needing government or B2C sales, a mainland license is often safer. If you sell internationally (or will primarily invoice outside UAE), a free zone makes sense.
  
• Revenue Sources: Under UAE corporate tax rules, a free zone company must pass the Qualifying Free Zone Person tests (adequate staff, local expenses, etc.) to enjoy 0% tax. If you expect significant income from UAE clients (onshore), you might fail QFZP and end up paying tax anyway – in that case, just using a mainland LLC could be simpler.
  
• Operational Needs: Do you need a physical office, or are you remote/virtual? Mainland companies must lease real estate upfront, which adds cost. Free zones offer flexi-desks or flexi-warehousing for smaller budgets.
  
• Regulatory Environment: Some business activities in the UAE require local licensing (for example, a restaurant needs approval from Dubai Municipality). If your trade falls under such regulated categories, factor in that requirement now.
  
• Expansion Plans: Think about future expansion across the Emirates. While companies can now relocate or dual-license, the easiest route to new emirates is often via a mainland LLC (which can open a Dubai branch from Abu Dhabi more easily than a free-zone entity).
  
• Costs & Compliance: Mainland setup often has higher license fees and sponsor fees, but a free zone may require higher annual fees if you need many visas. Also consider accounting and PRO costs: mainland firms have more ongoing labor and immigration filings.

In summary, analyse where and how you will do business, not just what is cheapest at startup. The best jurisdiction maximizes your market access and legal comfort. A proactive planning session with an advisor can save thousands in the long run – it’s far better to plan the right structure today than to overhaul it later as the business grows.

FAQ (Frequently Asked Questions)

• Can a UAE free zone company sell directly in the mainland market?
  Yes, but not automatically. Under UAE law you must obtain a mainland branch license or operating permit to trade onshore. With Dubai’s new rules (2025/26), free zone firms can now apply to DET for a branch or a Free Zone Mainland Operating Permit, which legalizes onshore sales. Without these, direct sales on the mainland (to consumers or retailers) would breach licensing.
• What is Dubai’s Free Zone Mainland Operating Permit?
  It’s a permit issued by the Dubai Economy & Tourism (DET) under Resolution 11/2025 that allows approved free zone businesses to conduct specific activities on the mainland for 6-month periods (renewable). At launch it covered sectors like tech services, consulting, and trading. It costs AED 5,000 and lets companies use their free zone staff to serve Dubai-based clients without converting fully onshore.
• How do corporate taxes apply to free zone companies doing business onshore?
  UAE federal corporate tax (9% above AED 375k) applies to any onshore revenue. A free zone company must meet the “Qualifying Free Zone Person” criteria (substance, etc.) to keep certain income at 0%. In 2026, if your free-zone firm earns income from UAE mainland clients via a branch or permit, that income is taxable like a mainland entity. All onshore sales should be recorded separately, and corporate tax will be due on profits after the exemption threshold.
• Can free zone companies bid for UAE government contracts?
  Yes, now they can – but only if they hold a valid onshore license. The new regulations explicitly allow free zone firms to set up mainland branches or representative offices, making them eligible for government tenders. Previously, free zone companies were effectively barred from public sector contracts.
• Are all business activities allowed under the new branch/permit system?
  Not necessarily. Only the activities listed in the official permit or branch license are allowed onshore. Dubai’s DET is publishing a list of permitted activities (to be completed in 2025). Typically, non-regulated fields like consulting, IT, marketing and trading are included initially. Regulated activities (e.g. banking, insurance, medicine) still require additional government approvals.
• How do I open a mainland branch of my free zone company?
  You apply through the economy department (DET in Dubai, ADRA in Abu Dhabi, etc.). You need a No-Objection Certificate from your free zone authority, any government approvals (if your activity is regulated), and then you submit an application for a mainland branch license. Once granted, the branch is registered to the free-zone company and can operate under that license.
• Can a free zone company sell products to consumers in the UAE?
  Yes, but via approved channels. For physical goods, a free zone company must clear customs and often works with a local importer or gets a trade permit. With the new permit system, e-commerce vendors in free zones can sell to UAE customers through online marketplaces or their own stores, but usually via a UAE-based fulfilment service or agent. Direct B2C sales from the free zone address to customers are technically import sales and need an onshore license to be fully compliant.
• When should I choose a UAE mainland license over a free zone license?
  If your business requires local operations (retail shops, restaurants, logistics, construction, local services) or if you need to bid on government projects, a mainland license is usually better. Mainland LLCs also now allow 100% foreign ownership in most sectors. Mainland setup is also needed for any activity that involves regulated licenses (e.g. school, clinic, travel agency).
• What are common mistakes to avoid when starting a UAE business?
  Don’t just pick a license based on cost. Ensure the free zone or mainland license truly fits your business model and customer base. Common mistakes include underestimating visa needs, overlooking regulatory approvals (e.g. municipality health permits), and ignoring new laws like corporate tax or AML requirements. Work with a consultant to choose the right activity code and jurisdiction, and stay updated on rules to avoid legal issues later.
• Does a free zone company need a UAE national sponsor under the new laws?
  No. One of the main advantages of free zones – 100% foreign ownership – remains intact. The recent changes do not impose any local partner for free zone firms. Mainland companies also now allow 100% foreign ownership in most sectors thanks to the 2021 amendment of the Companies Law, though some strategic industries still require Emirati participation.
• How much does it cost to get a mainland branch license?
  Under Dubai’s scheme, a free zone company pays roughly AED 10,000 per year for a branch license. Abu Dhabi’s Dual Licence starts around AED 1,200 (basic package). In addition to licensing fees, budget for office Ejari lease, processing fees, and potential sponsor costs (if any). The Mainland Operating Permit in Dubai costs AED 5,000 for a 6-month permit.
• Can I move my free zone company from one emirate to another?
  Thanks to Federal Law No. 20/2024 (amending the Commercial Companies Law), companies can now relocate between emirates, free zones, and onshore without liquidation. Your company’s registration and history remain intact. This means a free zone entity can switch to mainland or another free zone more easily than before.
• What is Abu Dhabi’s Dual Licence initiative?
  Abu Dhabi’s Dual Licence lets existing Abu Dhabi free zone companies add an onshore license within AD. For a flat fee (starting at AED 1,200 for 6 activities), a business can activate mainland operations in Abu Dhabi while keeping its free zone benefits. It was designed to bring free zone firms into the Abu Dhabi market without forfeiting their free zone status.