What is the difference between an LLC and a Freezone company in UAE?

Answer 1

"A more apt differentiation can be made between choosing between a free zone company or a mainland company (LLC’s). There are two main differentiators between a Free zone company and an LLC/ mainland company:

1. Jurisdiction to conduct business activities

Free Zone businesses can only conduct business within its specific Free Zone or outside the UAE. They cannot sell their products or provide their services directly in UAE mainland. A mainland registered company (LLC) can conduct business activities in and outside the UAE. They are not restricted to any particular geography or Free Zones. If a Free Zone company wishes to sell their products within the UAE, they can only do so through a distributor with a mainland license. The distributor can act as the Free Zone companies’ local agent. If a Free Zone company chooses to use a distributor to sell goods, the goods should either be shipped in through the distributor itself or a 5% duty will be applied for any goods that exit the Free Zone.

2. Ownership Structure

In terms of ownership structures, Free Zone licensed companies can be 100% owned by expatriates and do not require a UAE National Partner or a local service agent. LLC’s on the other hand need to list a UAE National in their business license, either as a partner or a National Service Agent (Local Service Agent). Additionally, the UAE National needs to be the majority stake holder, holding a minimum of 51% percent stake, with expatriates being able to hold a maximum of 49% shares in the company. In certain cases, however, if the business activity falls under a professional license, an expatriate may own 100% stake in the company but will need to appoint a UAE national as a National Service Agent.

On the basis of the business activity, target market and ownership structure desired, an entrepreneur can decide on the type of company they would like to set up, Mainland (LLC) or Free Zone. Along with above two differentiations that influence business setup decisions the following differences also exist between the two:

a. Office Space

While applying for a mainland license a business must show a rental agreement with minimum office space of 140 sqft. Free Zone Licenses on the other hand can be incorporated with or without a physical office space, with many Free Zones offering license holders with smart/ flexi office usage, this however restricts visa allocations.

b. Visa Eligibility

Visa Quotas for mainland businesses are allocated on the basis of the office size for mainland companies (80 sqft = 1 visa). Sperate quota for visas can also be applied for those who do not work within the office (Sales staff, drivers etc.), these do not affect office space visa quotas. Free Zone companies are limited to a certain number of visas depending on the package availed from the respective free zone (1-6). If the company requires more, they will need to rent a physical office space in the free zone.

c. Governing Body

Mainland businesses will require standard approvals from local authorities (DED, MOL, DM etc.). Additionally, depending on the business activity, they may need approvals from third party governing bodies (DHA, HAAD, KHDA, RERA, Civil Defense etc.). Free Zone establishments usually do not need approvals from external bodies."