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Free Zone vs Mainland UAE: 2025 Changes
The UAE's Commercial Companies Law amendments (Federal Decree-Law No. 20 of 2025) let companies transfer between free zones and mainland without dissolving. Here's what changes for founders in 2026 — with cost analysis, decision frameworks, and tax implications.
StartupOS TeamAug 12, 2026
Federal Decree-Law No. 20 of 2025, effective 1 January 2026, allows UAE companies to transfer their registration between free zones and mainland — and even from foreign jurisdictions into the UAE — without dissolving and re-establishing. Combined with Dubai Executive Council Resolution No. 11 of 2025 (which lets free zone companies operate onshore via a branch permit), the rigid "free zone OR mainland" choice that defined UAE business setup for 30 years is collapsing.
The 30-Year Wall Just Fell
Since the UAE created its first free zone in Jebel Ali in 1985, founders have faced a binary decision: set up in a free zone (100% foreign ownership, tax benefits, but restricted mainland access) or go mainland (full market access, but historically required a local sponsor). Switching meant dissolving one company, liquidating assets, transferring contracts, opening a new entity, and starting from scratch.
That wall no longer exists.
In October 2025, the UAE issued Federal Decree-Law No. 20 of 2025, amending the Commercial Companies Law (Federal Decree-Law No. 32 of 2021). Effective 1 January 2026, the amendment introduces three structural changes that collectively dissolve the free zone-mainland barrier:
- Redomiciliation — Companies can transfer their commercial registration between emirates, between free zones, from free zone to mainland, and even from foreign countries into the UAE, all while retaining the same legal entity, history, contracts, and obligations.
- Corporate citizenship — Free zone companies are now formally recognized as UAE companies under Article 13(3), reducing ambiguity for multi-jurisdictional structures.
- Free zone onshore access — Separately, Dubai Executive Council Resolution No. 11 of 2025 allows most non-financial free zone companies in Dubai to operate on the mainland via a branch licence or temporary permit from DET.
The Ministry of Economy and Tourism stated that companies can now transfer registration "between emirates, free zones and financial free zones, while maintaining the company's original legal personality as well as its contracts and obligations, without the need for re-establishment or liquidation." — moet.gov.ae
The Five Amendments That Matter
1. Redomiciliation (Art. 15)
Before: Moving from a free zone to mainland (or vice versa) required dissolving the original entity, transferring assets, and incorporating a new company. Contracts, banking relationships, visas, and trade licenses all had to be recreated.
After: A company can transfer its registration to a different licensing authority while remaining the same legal entity. Its assets, liabilities, contracts, and obligations continue uninterrupted.
| From | To | Status |
|---|---|---|
| One emirate | Another emirate | ✅ Permitted |
| Free zone | Mainland | ✅ Permitted |
| Mainland | Free zone | ✅ Permitted |
| Free zone | Another free zone | ✅ Permitted |
| Foreign country | UAE | ✅ Permitted |
What this means for founders: If you set up in a free zone and later win a major mainland contract that requires a mainland license, you no longer need to choose between restructuring or losing the deal. You can redomicile. Your company keeps its tax history, bank accounts, employee visas, and trade license track record.
2. Share Classes (Art. 76)
Before: Mainland LLCs could only issue one class of shares. If you wanted preferred shares, different voting rights, or founder vesting structures, you needed a DIFC or ADGM entity — or a complex shareholders' agreement layered on top.
After: Mainland LLCs can now issue multiple classes of shares with differentiated rights — voting, dividends, redemption, and liquidation priorities. All share classes must be publicly registered for transparency.
Venture capital terms (preferred shares, anti-dilution, liquidation preferences) that previously required a DIFC/ADGM holding company can now potentially be structured onshore. This narrows the gap between mainland and financial free zones for startups raising institutional capital.
3. Drag/Tag-Along Rights
Before: Drag-along and tag-along rights existed only in private shareholders' agreements. Enforcing them onshore was uncertain — local notary practice often required unanimous shareholder presence for share transfers, making drag-along practically difficult.
After: These exit mechanisms can now be embedded directly in the company's constitutional documents (Memorandum or Articles of Association). Succession provisions — including what happens to shares on death — are also formally recognized.
4. In-Kind Capital (Art. 78)
Before: In-kind contributions (IP, real estate, equipment) were possible but practically avoided due to unclear valuation standards and regulatory friction.
After: Shareholders can contribute shares in kind, valued by accredited valuers or agreed by partners, subject to competent authority approval.
What this means for founders: Founders contributing intellectual property, technology, or other non-cash assets to their UAE company have a clearer, more predictable path. This also supports vendor rollover structures in acquisitions.
5. Private Placements
Before: Only public joint stock companies could make public offerings. Private JSCs had limited capital-raising options.
After: Private JSCs can now offer securities via private placement on UAE financial markets, subject to SCA conditions. A new mid-tier fundraising option between pure private M&A and full IPO.
Redomiciliation vs the Old Way
One of the most practical questions founders ask: "What does it cost to switch?" Here's the comparison based on current regulatory fee schedules:
| Factor | Old Way (Dissolve + Re-establish) | New Way (Redomiciliation) |
|---|---|---|
| Liquidation of original entity | AED 5,000 – 15,000 | Not required |
| New company incorporation | AED 12,500 – 25,000 | Not required |
| Transfer fee | N/A | AED 2,000 – 5,000 (estimated) |
| New trade license | AED 10,000 – 30,000 | Amendment: AED 1,000 – 3,000 |
| Visa cancellation & re-sponsorship | AED 3,500 – 7,000 per employee | Visas transfer with entity |
| Bank account disruption | 4-8 weeks closure + reopening | Account continues unchanged |
| Contract novation | Legal fees + counterparty consent | Contracts continue automatically |
| Time to complete | 3-6 months | 4-8 weeks (estimated) |
| Total estimated cost | AED 30,000 – 80,000+ | AED 5,000 – 15,000 |
| Business disruption | Significant | Minimal |
Exact redomiciliation fees depend on the specific free zone and mainland authority involved. Implementing regulations are still being finalized at the cabinet level. Verify with your licensing authority before proceeding.
When Free Zone 0% Still Matters
The redomiciliation reform doesn't exist in a vacuum. It interacts with three tax layers that determine whether a free zone or mainland structure is optimal.
Layer 1: Corporate Tax (9%/0%)
The UAE applies a 9% corporate tax on profits above AED 375,000. Free zone companies that qualify as Qualifying Free Zone Persons (QFZPs) can access 0% on qualifying income. But QFZP status is now an annually tested compliance position, not a permanent status.
| Activity | Key Condition |
|---|---|
| Manufacturing of goods or materials | Must occur within the free zone |
| Processing of goods or materials | Must occur within the free zone |
| Holding of shares and securities | Minimum 12 months continuous ownership |
| Headquarters services to related parties | Expanded definition |
| Treasury and financing services | Broadened by MD 229 — includes self-investment and intra-group financing |
| Fund management services | Must be regulated |
| Wealth and investment management | Must be regulated |
| Reinsurance services | Must be regulated |
| Financing and leasing of aircraft | — |
| Distribution from Designated Zones | To resellers/processors only, not end consumers |
| Logistics services | — |
| Qualifying IP (modified nexus approach) | R&D-based IP only |
| Trading of qualifying commodities | Expanded 2025: chemicals, carbon credits, renewable energy certificates |
| Excluded Activity | Notes |
|---|---|
| Banking activities | Separate from qualifying treasury/financing exception |
| Insurance (except reinsurance) | Reinsurance remains qualifying |
| Ownership/exploitation of immovable property | Except commercial property in free zones transacted with other free zone persons |
Layer 2: The De Minimis Trap
QFZP status requires that non-qualifying income stays below the lower of 5% of total revenue or AED 5 million. Breaching this threshold doesn't just tax the excess — it destroys QFZP status entirely for that tax period and potentially the next four years.
Breaching the threshold means ALL income becomes taxable at 9% — not just the excess. And the penalty can extend for up to 5 years (current period + 4 subsequent). This is where redomiciliation becomes strategic: if your mainland revenue is growing toward the limit, you can redomicile to mainland before breaching it, rather than being hit with 9% on everything while locked into a free zone structure.
Layer 3: DMTT (15% Min. Tax)
For multinational groups with consolidated revenue of EUR 750 million+, the Domestic Minimum Top-Up Tax (DMTT) under Cabinet Decision No. 142 of 2024 applies regardless of free zone status.
| Business Profile | DMTT Applies? | Free Zone 0% Meaningful? |
|---|---|---|
| Domestic UAE company (any size) | ❌ No | ✅ Yes — full benefit |
| Small/mid-size international group (< EUR 750M) | ❌ No | ✅ Yes — full benefit |
| Large MNE group (EUR 750M+) | ✅ Yes — topped up to 15% | ❌ No — effectively neutralized |
For large MNEs, the free zone 0% rate is topped up to 15%, making the free zone vs mainland tax distinction largely irrelevant. The structuring decision should be driven by operational needs, not tax rate.
Free Zone Onshore Access
Separately from the federal redomiciliation law, Dubai Executive Council Resolution No. 11 of 2025 allows most non-financial free zone companies in Dubai to operate on the mainland:
| Mechanism | Duration | Cost | Best For |
|---|---|---|---|
| Branch licence | 1 year, renewable | AED 5,000 – 10,000 | Ongoing mainland operations |
| Temporary permit | Up to 6 months | Lower fee | Short-term projects, market testing |
The activity must be on DET's approved list (published September 2025). DIFC financial institutions are excluded. Companies trading on the mainland before the resolution had until early March 2026 to regularize their status.
The strategic implication: For many businesses, the question is no longer "free zone or mainland?" but "free zone with a branch permit, or mainland?" The free zone option now includes mainland market access at a marginal cost of AED 5,000-10,000/year.
Choosing the Right Structure
| Scenario | Recommended Structure | Why |
|---|---|---|
| Revenue predominantly international | Free zone | 0% on qualifying income, fast setup |
| Revenue predominantly UAE domestic | Mainland | No QFZP compliance burden, simple 9% |
| International + occasional mainland | Free zone + DET branch permit | Best of both, AED 5-10K/year extra |
| Free zone but mainland revenue growing | Redomicile to mainland | Avoid de minimis breach before it happens |
| Foreign company moving to UAE | Redomicile into UAE | Retain entity history, contracts, track record |
| Startup raising VC capital | Mainland LLC (new share classes) | Preferred shares now possible onshore |
| Large MNE (EUR 750M+) | Either — DMTT neutralizes tax | Structure based on operational needs |
The 5-Step Founder Playbook
Map your revenue streams. Will your income be predominantly international (qualifying) or domestic (non-qualifying)? This is the single most important factor.
Check the QFZP qualifying list. If your activity qualifies, a free zone structure can deliver 0% tax — but only if you can maintain the de minimis threshold annually.
Add a DET branch permit if you need mainland access. Rather than setting up a separate mainland company, add a branch permit (AED 5,000-10,000/year) to keep everything under one legal entity.
Redomicile if mainland revenue exceeds de minimis. If your mainland revenue grows beyond 5% of total or AED 5M, redomicile to mainland — you can always redomicile back later.
For large MNEs: ignore the tax rate. If you're part of a EUR 750M+ group, the DMTT makes the free zone tax advantage irrelevant. Structure based on operational needs.
The 2026 Compliance Reality
The new flexibility comes with higher compliance expectations:
| Requirement | Applies To | Deadline |
|---|---|---|
| Corporate tax registration | All businesses | Before first filing |
| Corporate tax return filing | All businesses | Sep 30, 2026 (Dec 2025 year-end) |
| QFZP qualification evidence | Free zone companies claiming 0% | Annual, with tax return |
| Audited financial statements | Free zone companies claiming QFZP | With tax return (MD 84 of 2025) |
| Transfer pricing documentation | Related-party transactions | With tax return |
| UBO filing | All UAE companies | Upon changes, annually confirmed |
| E-invoicing (voluntary pilot) | All businesses | From Jul 2026 |
| E-invoicing (mandatory) | All businesses | 2027 (phased) |
Timeline: How We Got Here
Jebel Ali Free Zone established — the first UAE free zone, creating the free zone vs mainland binary.
Commercial Companies Law amended — 100% foreign ownership allowed on mainland, removing the biggest mainland disadvantage.
UAE Corporate Tax (9%) takes effect — introducing the first federal corporate income tax.
Cabinet Decision No. 142 of 2024 — 15% DMTT announced for large MNEs (EUR 750M+ threshold).
DMTT effective for fiscal years starting on or after 1 January 2025.
Ministerial Decision No. 229 of 2025 — expanded QFZP qualifying activities and commodities list.
DET publishes approved activity list for free zone onshore access in Dubai.
Federal Decree-Law No. 20 of 2025 issued — redomiciliation, multiple share classes, drag/tag rights, corporate citizenship.
Federal Decree-Law No. 20 of 2025 effective. Federal Decree-Law No. 17 of 2025 (Tax Procedures Law) also effective.
Deadline for free zone companies to regularize mainland operations in Dubai.
UAE e-invoicing voluntary pilot begins under Peppol PINT-AE standard.
Corporate tax filing deadline for December 2025 year-end businesses.
E-invoicing mandatory rollout expected (phased by business size).
Frequently Asked Questions
Sources
- Federal Decree-Law No. 20 of 2025 — Amendment of Certain Provisions of Federal Decree-Law No. 32 of 2021 on Commercial Companies
- Ministry of Economy and Tourism — Legislative development review (moet.gov.ae)
- Dubai Executive Council Resolution No. 11 of 2025 — Regulating Free Zone Establishments' Activities on Mainland
- Cabinet Decision No. 142 of 2024 — Domestic Minimum Top-Up Tax on Multinational Enterprises
- Ministerial Decision No. 229 of 2025 — Qualifying Activities and Excluded Activities for QFZP
- Ministerial Decision No. 230 of 2025 — Recognized Commodity Exchanges and Price Reporting Agencies
- Ministerial Decision No. 84 of 2025 — Audited Financial Statements for Corporate Tax purposes
- UAE Federal Tax Authority (tax.gov.ae)
- UAE Ministry of Finance (mof.gov.ae)
- Reed Smith, Norton Rose Fulbright, Greenberg Traurig — Legal analyses of the Amendment Law
This article is for informational purposes only and does not constitute legal or tax advice. Consult a licensed UAE corporate advisor for guidance specific to your situation. Legislation and implementing regulations are still evolving — verify current requirements with the relevant authorities.
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