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Setting Up a Company in the UAE: Mainland vs Free Zone

The UAE is one of the most popular places for Indian entrepreneurs, consultants and traders to set up a business abroad. It has a 9% corporate tax with generous reliefs, no personal income tax, a strong banking system and a large Indian community. But the choice between mainland and free zone, and the Indian tax and FEMA rules that apply to you as an Indian resident or NRI, need careful planning.

Mainland or free zone?

Mainland (onshore) Free zone
Licensing authority Emirate’s economic department (e.g. Dubai Department of Economy and Tourism) The free zone authority (e.g. DMCC, IFZA, RAKEZ, Meydan)
Foreign ownership Up to 100% for most activities, since the Commercial Companies Law changes of 2021 100%
Where you can trade Anywhere in the UAE and abroad, including directly with UAE consumers and government Mainly within the free zone and abroad. Selling directly into the UAE mainland usually needs a distributor or extra permissions
Office A physical office (Ejari-registered lease) is generally needed Flexi-desk or shared office options are common
Corporate tax 9% above AED 375,000 Can qualify for 0% on “qualifying income” if strict conditions are met. Otherwise 9%
Best for Businesses serving UAE customers (retail, contracting, local services) Export, trading, consulting for overseas clients, holding

100% foreign ownership on the mainland

Federal Decree-Law No. 26 of 2020, later consolidated into Federal Decree-Law No. 32 of 2021 on Commercial Companies, removed the old rule that a UAE national had to hold 51%. Foreign investors can now fully own most mainland companies. Exceptions: activities of “strategic impact” such as defence and security, telecoms, banking, insurance and exchange houses, and some others, may still have ownership limits. Always check that your specific activity code qualifies.

Common business structures

  • LLC (Limited Liability Company): the most common form for mainland trading and services.
  • Free Zone Company (FZ-LLC / FZCO) or Free Zone Establishment (FZE): single or multiple shareholders within a free zone.
  • Branch of an Indian company: the UAE branch of an existing Indian company. It is not a separate legal entity from the parent.
  • Sole establishment / freelance permit: for individual professionals. This brings its own personal tax and corporate tax considerations.

The setup process (typical steps)

  1. Choose your business activity and jurisdiction (mainland or a specific free zone).
  2. Reserve a trade name and get initial approval.
  3. Prepare the Memorandum of Association or constitutional documents. Shareholders’ passports, and sometimes attested documents, are needed.
  4. Arrange your office: a lease or a flexi-desk.
  5. Issue the licence.
  6. Apply for establishment card, investor and employee visas, and Emirates IDs.
  7. Open a corporate bank account. This is often the longest step, because UAE banks carry out detailed KYC checks.
  8. Register for corporate tax with the Federal Tax Authority (FTA) within the deadline, and for VAT if your turnover crosses the threshold.

Costs vary widely by emirate, free zone, activity and number of visas. Get a current quotation from the authority or a licensed setup agent, because fees change often.

The Indian side: what you must not miss

If you are an Indian resident

  • FEMA – Overseas Direct Investment (ODI): investing in a foreign company is governed by the FEMA (Overseas Investment) Rules, 2022. A resident individual can make ODI only in an operating foreign entity that is not in financial services, within the Liberalised Remittance Scheme limit of USD 250,000 a year. There are restrictions where the foreign entity has subsidiaries the individual controls. You must route the investment through your authorised dealer bank and file the required forms. An Annual Performance Report is due by 31 December every year.
  • Indian tax: as an Indian resident, dividends and other income from the UAE company are taxable in India. If the company is actually managed from India, it can itself become tax-resident in India under the Place of Effective Management (POEM) rules. See the separate article in this series.
  • Schedule FA: your shares in the UAE company must be reported in your Indian ITR every year.

If you are an NRI living in the UAE

Your UAE business income is generally not taxable in India, but check your residential status each year. That depends on your days in India and your Indian income. See the residential status and deemed residency articles in our NRI series.

Frequently asked questions

Can an Indian own 100% of a UAE company?
Yes. Free zone companies have always allowed 100% foreign ownership, and most mainland activities now do too.

Is a UAE free zone company tax-free?
Not automatically. A free zone company gets 0% only on qualifying income and only if it meets every Qualifying Free Zone Person condition. Otherwise 9% corporate tax applies.

Do I need to live in the UAE to own a UAE company?
No, but bank accounts, visas and corporate tax substance rules are easier to meet if you are present. For Indian residents, the FEMA and POEM rules make a real difference.

Can I set up a UAE company from India without RBI approval?
Most ODI by resident individuals falls under the automatic route through your bank, as long as the FEMA conditions are met. No separate RBI approval is needed in those cases.

Planning a business abroad? Garvita Jain & Co. helps clients plan cross-border structures, including UAE incorporation, ODI compliance under FEMA and Indian tax planning. Contact us here, or at contact@garvitajainandco.com or +91 98678 16597.

This article is general information based on the law as of October 2026 and is not professional advice.

Sources

Official

Professional / CA publications

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