How Does an LLC Compare to a Free Zone Company?

Starting a business in Dubai is indeed a smart choice. You must already be aware that there are several setup options in this globally preferred business hub. However, LLC and Free Zone Company in Dubai are the two top options. Not only locals, but even foreign investors choose these options for setting up their business.

Both LLC and Free Zone setup options come with specific benefits, rules, and limitations. By knowing how they differ, you can select the right option for your business. Whether you are an entrepreneur or investor, this blog can help you run your business smoothly in the Emirates’ competitive market. Keep reading to learn everything about the Free Zone and LLC company in Dubai to make the best decision. 

What is an LLC in Dubai?

An LLC is a legal setup that makes sure the owner is not responsible company’s debts, as it shields the personal assets. This means even if a company faces financial issues, debts, and legal issues, the owner’s personal assets always remain protected. As the business is separate from its owners, the company itself is responsible for all liabilities. 

This is a common structure for a mainland company, which can operate freely within the local markets. These are mostly used for activities, like trading, consultancy, and other services. The best benefit for mainland businesses is that they are eligible to apply for government contracts. Those who wish to operate freely within the local market across the Emirates must choose to set up an LLC company in Dubai. 

Ownership Rules for an LLC Company in Dubai

• Previously, foreign nationals needed to have an Emirati partner who held 51% of their mainland LLC shares. 
• Recent changes in legal rules have removed the requirement to have a local partner for many business activities. 
• Many sectors are now eligible to enjoy full foreign ownership benefits on the mainland, so it is also becoming an appealing option for expat investors. 

What is a Free Zone Company?

You must already be aware that a free zone is a special area within a country that has different legal rules and economic regulations from the rest of the country. So, companies established in these zones follow guidelines set by specific FZAs. The main purpose of these is to attract foreign inventors by offering benefits, like a simpler setup process, complete ownership rights for expats, and tax exemptions. 

Across the Emirates, Dubai has the most free zones. Each one of them offers special facilities for particular sectors, like media, IT, and healthcare. Unlike a mainland business setup, setting up a free zone company in Dubai is easier and quicker. It is generally opted for by investors and startup owners looking for an affordable way to enter the Emirates market. 

Ownership Rules for a Free Zone Company in Dubai

• Foreign nationals can set up this company in Dubai without the need for an Emirati partner. 
• These operate in the specific zone they’re established in and follow a special set by their free zone authorities. 
• You must check the regulations for your specific industry and the free zone, as requirements and limitations vary for different free zones.

Key Differences Between an LLC and a Free Zone Company

Both these legal structures allow foreign nationals to run their business. However, they differ in ownership rules, operational scope, and other factors. You must understand these differences to choose an option aligned with your needs.

1. Ownership & Shareholding

Generally, an LLC company setup needs a local partner who holds a minimum of 51% shares of your business. However, recent changes have made full foreign ownership available for certain activities with an Emirati partner. Unlike LLCs, free zones from the start allow complete foreign ownership control for foreign investors without the need for a local partner. 

2. Business Scope & Location

Businesses established on the mainland in Dubai can operate their businesses anywhere in the Emirates and internationally. So, they don’t face issues like geographical restrictions. If free zone companies want to engage in direct business with the companies established in the mainland market, they need to secure special permissions or an additional license. However, they can operate internationally. 

3. Office Requirements

You can set up an LLC company in Dubai without a physical space. Moreover, the chosen space must match the minimum size requirement, which is usually 200 square feet. Unlike LLCs, free zone companies have more flexibility. They can start operations with a virtual office. So, the physical office option is optional for them. 

4. Licensing & Activities

LLC companies in the mainland need to follow regulations set by the local DET. They have fewer restrictions on business activities and can conduct a wide range of operations within the country. In free zones, the activities depend on the type of license obtained. So, a free zone company in Dubai can operate limited activities within its zone or specific international markets.

5. Tax & VAT implications

All companies established in the mainland must pay 9% corporate tax on their annual income if it exceeds the eligible limit, which is AED 375,000. Moreover, customs duties are also applied to them. Free zone companies enjoy exemptions from taxes and customs duties. However, a 5% VAT is applied to most goods and services. Some zones also offer a 0% VAT advantage for certain transactions.

Advantages of a mainland LLC Company in Dubai

We discussed above that a mainland LLC is a business structure registered with DED, which permits it to operate anywhere in the UAE. 

• Access to the local UAE market: Mainland businesses enjoy unrestricted access to the entire Emirati market. So, they can sell goods and services and connect directly with other mainland companies.
• Flexibility in business activities: Compared to free zone companies, LLCs have more options for business activities. DET issues a business license that allows LLCs to operate various activities. Moreover, their activity list is broader than what free zones offer.
• Ability to Bid for Government contracts: Only companies established on the mainland are qualified to take part in government contracts. However, these opportunities are inaccessible for most free zone companies.

Advantages of a Free Zone Company in Dubai

Free zone companies are established within special economic zones and need to follow specific regulations. These zones attract foreign investors by providing a tax-free business environment. 

• 100% Foreign Ownership: By establishing these companies, foreign nationals can secure a complete foreign ownership advantage without the need for a local partner.
• Tax exemptions: Another benefit of operating in a free zone is that it offers tax benefits. Although 9% corporate tax has been introduced in the Emirates, most free zone businesses can still benefit from a 0% rate, even on their qualifying income. 
• Simpler setup and faster approvals: The process to set up a free zone company in Dubai is usually simpler and faster, as it involves less paperwork. In some free zones, you can secure your business license in a few days.

Which Option is Right for You? 

As we discussed above, both these setup options offer their own benefits, so choosing one might be challenging. However, with the help of a trusted business consultant in Dubai, you can easily make this decision. 

Choose LLC If:

• You need to serve the local mainland market and need greater operational flexibility, as a free zone setup will tie you to a specific zone. 
• The cost to set up an LLC is higher due to complex regulations and paperwork requirements, so this option is better for established businesses. 
• Without a physical office space, it is not possible to start an LLC. Moreover, the number of visas is based on size requirements. 
• This option offers access to the entire Emirates market. Moreover, these businesses can engage with government contracts. 

Choose a Free Zone Company If:

• Your main focus is on international trade, and you want to take advantage of complete foreign ownership, tax benefits, and full profit repatriation. 
• This option is better for basic business setup, particularly for startups or SMEs. As the paperwork requirement is less, it is usually more affordable. 
• If you want to start your operation in Dubai without a physical office, then you should opt for a free zone setup. It allows a virtual office solution. However, this often comes with limited visa allocations. 
• If you’ve no issues with being restricted only to a specific free zone, this option is better. However, if you need to be involved in direct trading with a mainland business, you need a local distributor. 

Choosing the Right Business Structure with Us

Start Any Business understands that selecting the right option between an LLC company in Dubai and a Free Zone company can be difficult. So, we help our clients choose the ideal structure based on their business goals, ownership preferences, and market focus. Moreover, our experts promise support at every step of your business setup. Partner with us to make your company setup in this globally known business hub simpler and hassle-free. We promise to help you choose the best setup option and handle all paperwork and registration requirements.