Key Takeaways
- Opening a business in the UAE runs in six steps: choose the activity, check foreign-ownership rules, pick mainland or a free zone, choose a legal structure, get approval and a licence, then register for tax.
- Most mainland activities allow 100% foreign ownership, but a Cabinet-defined list of “strategic impact” activities can carry national-participation requirements.
- Free zones aren’t tax-free anymore. Corporate tax is 0% up to AED 375,000 of taxable income and 9% above it, and every free zone company must register, even if it qualifies for the 0% rate.
- The two numbers worth remembering are AED 187,500 (voluntary VAT registration) and AED 375,000 (mandatory VAT registration for UAE residents, and the corporate tax band).
Opening a company in the UAE is faster than in most markets, but speed doesn’t help if the first decision is wrong. Choose a free zone licence for a business that needs UAE customers, or an activity that needs an Emirati partner, and you’ll lose time before you trade.
This guide follows the order in which those decisions actually bite. It focuses on the choices foreign investors get wrong. For documents and costs, we’ve kept a separate step-by-step setup guide. Here’s the whole sequence at a glance.
Step 1: Which Activity Are You Licensing?
Start with the activity, not the location. The activity decides the licence type, which decides who can license you and where you can operate. On the Dubai mainland, the government’s set-up guide lists five licence types: industrial, commercial, professional, e-trader (for online sellers), and dual, which lets companies in certain free zones extend to the mainland.
If you’re still choosing what to start, our overview of the UAE business landscape covers where growth is concentrated. Two sector routes have their own guides: going digital with e-commerce and investing in Dubai real estate.
Step 2: Can Foreigners Own 100% of That Activity?
For most activities, yes. Dubai’s government states that most business activities allow 100% foreign ownership on the mainland, with certain strategic sectors excepted. The legal basis is Federal Decree-Law No. 26 of 2020. Under its Article 10, the Cabinet defines which activities have a “strategic impact” and sets the licensing controls for them, and the licensing authority can set a percentage of national participation in company capital or boards.
In practice, check your exact activity code with the licensing authority before you commit to a structure. If it’s a strategic activity, plan for an Emirati partner or a different activity scope.
Step 3: Should You Choose Mainland or a Free Zone?
Choose by where your customers are. A mainland licence lets you trade anywhere in the UAE. A free zone licence is issued by the zone itself, and each zone sets its own rules. Dubai alone has more than 20 free zones, so the trading scope you get depends on which one you pick.
| Mainland | Free zone | |
|---|---|---|
| Who licenses you | The emirate’s economic department (in Dubai, DET) | The free zone authority |
| Foreign ownership | 100% for most activities | 100% |
| Where you can trade | Across the UAE, subject to sector rules | Varies by zone |
| Corporate tax | 0% up to AED 375,000, then 9% | 0% on qualifying income for qualifying companies, 9% on the rest |
The tax row is where older advice goes wrong. Dubai’s own portal still describes free zone profits as tax-free, but the Federal Tax Authority’s May 2024 guide sets out the current rule: qualifying free zone persons get 0% on qualifying income, non-qualifying income is taxed at 9%, and companies must keep adequate substance in the UAE to hold that status.
Use the table below as a rule of thumb, not legal advice. The right answer depends on your exact activity and customers, so confirm it with the licensing authority.
| Your situation | Route to look at first | Check before you commit |
|---|---|---|
| Selling to UAE customers or contracting locally | Mainland, or a free zone with a dual licence | That your licensed activities cover what you sell |
| Serving clients outside the UAE from a UAE base | Free zone | Whether the zone permits your activity, and whether you’d meet the qualifying-income conditions |
| Activity that may be strategic or regulated | Confirm with the licensing authority first | National-participation rules and any sector approvals |
| Extending an existing foreign company | Branch or representative office | What the office may do, since some structures can’t trade directly |
Step 4: Which Legal Structure Fits?
The structure sets liability, ownership, and who can manage the company. A limited liability company (LLC) limits owners’ liability to the capital they invest. A branch or representative office extends an existing foreign company instead. The full list of mainland and free zone structures, with definitions, is in our setup guide.
Step 5: How Do You Get Approval and a Licence?
On the Dubai mainland, DET reviews your application and gives initial approval, you register your trade name, activity, and structure, and you receive the licence after submitting the approval receipt, the memorandum of association, and any additional approvals. That’s the sequence Dubai’s government describes. Free zones run their own process directly, so timelines and paperwork differ by zone.
Ask for a written list of required approvals for your activity before you pay any fees. Some activities need sign-off from a sector regulator on top of the licensing authority, and the licence only covers the activities written on it. If your plans change later, adding an activity usually needs an approved amendment, not a verbal go-ahead. Documents and cost lines are in our setup guide.
Step 6: What Tax Registrations Do You Need?
Corporate tax applies to financial years beginning on or after 1 June 2023 under Federal Decree-Law No. 47 of 2022, at 0% on taxable income up to AED 375,000 and 9% above it, according to the UAE Government portal. The FTA says all free zone persons must register for corporate tax, whether or not they qualify for the 0% rate. The same guide separates qualifying activities from excluded ones, so a free zone company earning income from both can end up with a blended tax position.
VAT is a separate test, measured on taxable supplies rather than income. The Federal Tax Authority sets mandatory registration at AED 375,000 of taxable supplies and imports over the previous 12 months, or expected in the next 30 days. Voluntary registration starts at AED 187,500. The mandatory threshold doesn’t apply to foreign businesses.
What Mistakes Cost Foreign Investors the Most Time?
- Licensing before checking the activity. A strategic-impact activity can bring a national-participation requirement you didn’t plan for.
- Choosing a free zone for a UAE-facing business. Trading scope varies by zone, so confirm in writing what your licence lets you sell, and to whom. A dual licence can extend some free zone companies to the mainland.
- Assuming free zone means tax-free. Every free zone company must register for corporate tax, and the 0% rate covers qualifying income only.
- Skipping VAT planning. The registration test looks backward 12 months and forward 30 days, so growth can trigger it sooner than expected.
Contact ABZI to Discuss Market Entry
Abdulla Bin Zayed Investment Group isn’t a licensing agent, so we don’t process company formation. We’re a UAE group active in aviation, real estate, energy, engineering, and landscaping since 1990, and we’re glad to talk about market entry in the sectors where we operate, or about partnerships. See our group of companies for the businesses involved.
Contact ABZI to Discuss Market Entry
Frequently Asked Questions
Can a foreigner own 100% of a company in the UAE?
Yes, for most activities. Dubai’s government states that most mainland activities allow 100% foreign ownership, and free zones offer it too. A Cabinet-defined list of strategic-impact activities can carry national-participation requirements.
Do I need a local partner to open a business in the UAE?
Not for most activities. Federal Decree-Law No. 26 of 2020 changed the framework, and national participation now applies mainly where an activity has been defined as strategic. Check your exact activity with the licensing authority.
Is a UAE free zone company exempt from tax?
No. Free zone companies must register for corporate tax. Qualifying free zone persons pay 0% on qualifying income, and other income is taxed at 9%.
When do I have to register for VAT in the UAE?
UAE-resident businesses must register when taxable supplies and imports exceed AED 375,000 over the previous 12 months or are expected to in the next 30 days. Voluntary registration is available from AED 187,500.
