Introduction
The United Arab Emirates (UAE) has established itself as a leading global business hub by offering multiple corporate structures tailored to foreign and domestic investors. Among these, Mainland and Free Zone companies are the two most commonly used vehicles. For employers in law firms, in-house legal teams, and corporate advisory roles, lawyers are expected to understand not only the structural differences between these entities but also their practical legal implications across corporate governance, employment law, taxation, regulatory compliance, and dispute resolution.
This article outlines the key legal considerations employers expect lawyers to know when advising on or working with Mainland and Free Zone companies in the UAE.
1. Regulatory Framework and Licensing Authorities
Mainland Companies
Mainland companies are licensed by the Department of Economy and Tourism (DET) or equivalent emirate-level authority (e.g., Dubai DET, Abu Dhabi DED). They are governed primarily by:
- UAE Commercial Companies Law (CCL)
- UAE Civil Code
- UAE Labour Law (Federal Decree-Law No. 33 of 2021)
Key legal point employers expect lawyers to know: Mainland entities can conduct business anywhere in the UAE and internationally without restriction, subject to licensing approvals.
Free Zone Companies
Free Zone companies are licensed and regulated by individual Free Zone Authorities (e.g., DIFC Authority, DMCC, JAFZA, ADGM).
They are governed by:
- Federal UAE laws (where applicable)
- Free zone specific regulations
- In some zones (DIFC and ADGM), independent common law based legal systems
Employer expectation: Lawyers must identify when federal law applies versus when free zone regulations prevail particularly in DIFC and ADGM, where legal frameworks differ substantially from onshore UAE law.
2. Ownership and Foreign Investment Rules
Mainland Companies
Following reforms to the UAE Commercial Companies Law, 100% foreign ownership is now permitted in many sectors. However:
- Certain strategic or regulated activities still require UAE national participation
- Sector-specific approvals may be required (e.g., defence, oil & gas, telecoms)
What employers expect: Lawyers should conduct activity specific ownership analysis, not rely on outdated assumptions about mandatory local sponsors.
Free Zone Companies
Free zones generally allow:
- 100% foreign ownership
- Full repatriation of profits
- No currency restrictions
Legal insight: While ownership is straightforward, lawyers must advise clients on operational limitations, especially restrictions on trading directly with mainland customers without a local agent or distributor.
3. Scope of Business Activities and Market Access
Mainland
- Can trade freely within the UAE market
- Eligible to contract directly with government entities
- Suitable for retail, contracting, and service – based businesses targeting UAE consumers
Free Zone
- Primarily permitted to operate within the free zone or internationally
- Mainland trading typically requires:
- A mainland branch
- A local commercial agent
Employer expectation: Lawyers must flag compliance risks where free zone entities inadvertently conduct unauthorised mainland activities, which can lead to fines or licence suspension.
4. Employment Law and Workforce Considerations
Mainland Companies
- Governed entirely by UAE Labour Law
- Disputes heard by UAE Labour Courts
- Mandatory compliance with Emiratisation requirements (where applicable)
Free Zone Companies
- Most free zones apply UAE Labour Law with local administrative variations
- DIFC and ADGM have independent employment laws, offering:
- Contractual flexibility
- Common law–style dispute resolution
What employers look for: Lawyers must understand the jurisdictional nuances of employment disputes, particularly termination rights, end-of-service benefits, and restrictive covenants in DIFC/ADGM employment contracts.
5. Taxation and Economic Substance
Corporate Tax
- UAE Corporate Tax applies to both Mainland and Free Zone companies
- Qualifying Free Zone Persons may benefit from a 0% corporate tax rate on qualifying income, subject to strict compliance
VAT
- VAT registration and compliance obligations apply to both structures
- Some free zones are classified as Designated Zones, affecting VAT treatment of goods
Employer expectation: Lawyers should understand the intersection of tax law, corporate structuring, and economic substance regulations, particularly when advising multinational clients.
6. Corporate Governance and Compliance
Mainland
- Governed by the UAE Commercial Companies Law
- Requires compliance with:
- Statutory filings
- Shareholder resolutions
- Director duties under civil law principles
Free Zone
- Governance requirements vary by free zone
- DIFC and ADGM impose:
- Enhanced transparency
- Director fiduciary duties aligned with common law standards
Legal competence expected: Employers value lawyers who can draft and review constitutional documents (MOA, Articles, Shareholder Agreements) aligned with the applicable jurisdiction.
7. Dispute Resolution and Jurisdiction
Mainland
- Disputes generally heard in UAE onshore courts
- Proceedings conducted in Arabic
- Civil law system
Free Zone
- DIFC and ADGM courts operate in English
- Strong international enforcement reputation
- Arbitration-friendly environment
Employer insight: Lawyers must be able to advise on forum selection clauses, enforcement risks, and cross – border dispute strategies.
8. Compliance, Penalties, and Regulatory Risk
Employers expect lawyers to identify risks such as:
- Operating outside licensed activities
- Breach of immigration or labour quotas
- Non – compliance with Ultimate Beneficial Ownership (UBO) rules
- Failure to meet Economic Substance Regulations (ESR)
Key skill: Proactive compliance advisory, not merely reactive dispute handling.
Conclusion
Understanding the legal distinctions between Mainland and Free Zone companies in the UAE is no longer optional for corporate and employment lawyers. It is a core competency. Employers expect lawyers to go beyond surface – level comparisons and provide commercially informed, legally precise advice that aligns with business objectives while managing regulatory risk.
For lawyers seeking roles in UAE – focused practices or international firms, mastery of these legal considerations demonstrates both technical expertise and strategic value.
Author’s Note: This article is intended for informational purposes and does not constitute legal advice.
EK 