The recent reforms in UAE business laws have made it easier for foreign investors to establish a Mainland company under a Freezone-based holding structure. The 2020 update in company laws, which allows 100% foreign ownership in Mainland UAE for a wide range of business activities, provides international entrepreneurs with enhanced flexibility. This reform allows them to harness the advantages of Freezones, including tax benefits and asset protection, while accessing the local UAE market.
Legal Framework and Structuring Options
Previously, foreign investors were required to partner with a UAE national sponsor, holding 51% ownership, to establish a Mainland company. However, since the 2020 amendment, this requirement has been lifted across many sectors, enabling full foreign ownership. This rule change excludes some strategic sectors, such as energy and utilities, but provides extensive ownership freedom for most commercial and industrial activities.
With these updates, the UAE has bolstered its appeal as a global investment hub, making it easier for foreign-owned Freezone holdings to establish Mainland subsidiaries. Now, investors can leverage the benefits of both Mainland and Freezone jurisdictions, provided they comply with local regulations.
Advantages of a Freezone Holding Owning a Mainland Company
Setting up a Freezone holding to own a Mainland company provides several strategic benefits:
- Tax Efficiency: Freezone companies often enjoy exemptions from corporate tax, while Mainland companies are subject to a 9% corporate tax from 2023. Structuring with a Freezone holding allows for optimized tax planning while accessing the local UAE market .
- Asset Protection: By housing key assets in a Freezone holding, investors can reduce risk exposure associated with Mainland operations, creating an added layer of asset security.
- Direct Market Access: While standalone Freezone entities are restricted from trading directly in the Mainland market, a Freezone holding combined with a Mainland company allows legal and direct access to local clients and suppliers. This is particularly valuable for businesses looking to expand their presence in the UAE .
Compliance Requirements and Limitations
While this structure offers substantial advantages, there are important compliance requirements to consider:
- Activity Limitations: Some professional services and specialized business activities may still require a local service agent, even if 100% foreign ownership is allowed. Investors should confirm that their business activity qualifies for full foreign ownership before proceeding with this structure.
- Financial Transparency: Mainland companies must submit annual audited financial reports, a requirement that may not apply to Freezone entities. This transparency is essential for companies operating within the UAE's local economy.
A Freezone holding owning a Mainland company presents a strategic opportunity for foreign investors aiming to establish and grow their businesses in the UAE. With recent legislative reforms, this structure is more accessible than ever, balancing operational flexibility with market access. However, it is advisable to consult UAE legal and financial experts to ensure compliance with current regulations and to optimize the structure for maximum benefit.
For more information on structuring your UAE business, contact our team, who can provide insights and guidance tailored to your specific requirements.
