The United Arab Emirates has established itself as one of the most attractive business environments in the world for international investors and entrepreneurs. Its combination of political stability, advanced infrastructure, global connectivity, and competitive taxation makes it a strategic jurisdiction both for operating in the local market and for structuring international businesses.
However, setting up a company in the country is not a uniform process. There are different business models in the United Arab Emirates for foreigners, each designed to meet distinct business, tax, and operational objectives. Choosing the right structure from the outset helps avoid banking obstacles, regulatory overruns, and future operational limitations.
This analysis provides a structured overview of the most commonly used corporate models by foreigners, their tax implications following the introduction of Corporate Tax in 2023, and the strategic criteria needed to make a sound decision.
How the corporate ecosystem is structured in the UAE
The business system in the UAE is organized into three main regulatory environments, each with its own rules:
- Mainland: Companies registered under the Department of Economic Development (DED) of the relevant emirate.
- Free Zones: Free zones with independent authorities and specific regulations.
- Offshore: Entities designed for international operations with no direct activity in the local market.
Each environment determines:
- Geographical scope of commercial activity.
- Access to the UAE domestic market.
- Application of Corporate Tax.
- Economic substance requirements.
- Eligibility for residence visas.
- Accounting and audit compliance obligations.
Since June 2023, the UAE applies a 9% Corporate Tax on business profits exceeding the legally established threshold. Certain Free Zone entities may apply a 0% rate on qualifying income if specific conditions are met.
Free Zone Company: flexibility and international focus
The Free Zone Company is one of the most commonly used structures by foreigners. It is incorporated within a specific free zone, each typically specialized in certain sectors (technology, logistics, trade, media, finance, etc.).
Structural characteristics
- 100% foreign ownership.
- Sector-specific license issued by the Free Zone authority.
- Eligibility for company-sponsored visas.
- Restriction on direct operations in the mainland without a distributor or additional entity.
Tax regime
A 0% Corporate Tax rate may apply to qualifying income if the entity meets the requirements to be considered a Qualifying Free Zone Person. To qualify, it must:
- Generate income from permitted activities.
- Maintain real economic substance.
- Comply with accounting obligations and, in some cases, annual audits.
Non-qualifying income may be subject to the 9% rate.
When it is suitable
- International digital services.
- B2B consulting outside the UAE.
- International trading without local clients.
- Technology startups targeting regional markets.
Strategic limitations
It does not allow direct invoicing to the mainland market without an additional structure, which may entail extra operational costs if local presence is required.
Mainland LLC: full access to the domestic market
The Mainland Limited Liability Company (LLC) allows unrestricted operations throughout the UAE and direct contracting with local clients and public entities.
Key features
- Foreign ownership permitted in most sectors.
- Full access to the domestic market.
- Greater integration into the local economy.
Tax regime
- 9% Corporate Tax on taxable profits above the legal threshold.
- VAT registration required if turnover thresholds are exceeded.
When it is suitable
- Local B2C businesses.
- Retail and consumer trade.
- Construction and services related to real estate.
- Projects requiring public sector contracts.
Additional considerations
It may involve higher operational requirements, including physical office rental and a more extensive administrative structure.
Offshore Company: asset holding and international structuring
The Offshore Company is designed for operations outside UAE territory.
Main characteristics
- No permission to conduct local commercial activity.
- Typically does not grant residence visas.
- Used for holding structures or international planning.
When it is suitable
- Shareholding and equity holding.
- Wealth planning.
- International trade structuring without physical presence.
Careful analysis of banking access and international risk perception is essential.
Branch Office: direct extension of a foreign company
A branch allows a foreign company to operate in the UAE without creating a separate legal entity.
- Direct liability of the parent company.
- Activity limited to the licensed scope.
- Subject to the general tax regime.
This structure is common among multinationals seeking centralized control.
Economic substance and regulatory compliance requirements
Certain activities are subject to the Economic Substance Regulations (ESR), which require:
- Real physical presence in the UAE.
- Qualified personnel.
- Effective management from within the country.
- Operating expenses proportionate to the activity.
Non-compliance may result in significant administrative penalties.
Comparative tax impact by model
- Free Zone: Possible 0% on qualifying income, 9% on non-qualifying income.
- Mainland: General 9% on taxable profits.
- Offshore: Depends on activity and structure, with no access to the local market.
Planning should also consider:
- Double taxation treaties.
- Dividend distribution implications.
- Personal tax residence of the owner.
Real structural costs
The cost of incorporating and maintaining a company varies by model and emirate. It includes:
- Annual license fees.
- Office rent or flexi-desk.
- Visas and Emirates ID.
- Government fees.
- Accounting and audit services.
A prior analysis helps avoid underestimating the required budget.
Strategic framework for choosing a business model
- Target market: local or international.
- Client type: B2B or B2C.
- Expected turnover.
- Visa requirements.
- Substance requirements.
- Global tax impact.
- Banking requirements.
When these elements are aligned, the chosen structure is usually coherent and sustainable.
Common mistakes when setting up a company in the UAE
- Choosing a Free Zone without verifying eligibility for the 0% rate.
- Failing to plan bank account opening in advance.
- Underestimating recurring costs.
- Confusing corporate residence with personal tax residence.
- Ignoring economic substance requirements.
How Orience supports you
Orience provides comprehensive advisory services in Company Formation UAE, analyzing business objectives, tax structure, and regulatory risks prior to incorporation.
Support includes:
- Comparative strategic analysis.
- Company incorporation.
- Visa management.
- International tax planning.
- Ongoing compliance support.
The goal is not just to create a company, but to ensure that the structure aligns with the business model and remains sustainable over time.
Conclusion
Choosing among the different business models in the United Arab Emirates for foreigners is a strategic decision that affects taxation, operations, expansion, and long-term stability.
Free Zone, Mainland, Offshore, or Branch Office structures serve different needs. Success depends not solely on tax advantages, but on alignment between legal structure, target market, and financial planning.
With rigorous analysis and expert guidance, the UAE can become a solid business platform for operating in the Middle East and globally.
Frequently asked questions
Can a foreigner own 100% of a company in the UAE?
Yes. In most Free Zones and in many Mainland activities, full foreign ownership is permitted.
Do all Free Zones apply a 0% Corporate Tax rate?
No. Only entities that meet qualifying income and economic substance requirements are eligible.
Can an Offshore company operate in the local market?
No. It is designed for international operations without direct mainland activity.
Is a physical office mandatory?
It depends on the model and the activity. Substance requirements may require a real office.
Does incorporation imply personal tax residence?
Not necessarily. Tax residence depends on personal criteria such as length of stay and center of economic interests.