December 5, 2018
For many entrepreneurs, setting up in a UAE free zone is just a stepping stone to establishing a mainland business. And of course, there are plenty of great reasons to transition to a mainland license at the right time, such as a greater opportunity for expansion and diversification, and the option to trade directly with the local market.
If you’re a free zone company wondering if it is the right time for you to transition, consider the following:
- You’re looking for more investment
- You’ve hit your growth capacity
- You want to trade with local trade markets
- You want to branch out
If some or all of the points above ring true with you, you may be ready to switch your free zone business to a mainland one.
Why go mainland?
You're looking for more investment
Having established your free zone company, there may come a time when you want to open your funding to a wider pool of investors. While it may be hefty to do this as a free zone business, the mainland can make for a more attractive proposition to investors.
The mainland is, after all, a magnet for investment, particularly from overseas. Foreign direct investment (FDI) has increased steadily in recent years, reaching USD 10.35bn in 2017 – up from USD 9.6bn in 2016.
Investors are looking to put their money in businesses with room for expansive, and often rapid, growth. The latter can be limited if you are not registered in the Dubai mainland. Free zone businesses cannot trade outside their free zone without working with local agents or opening a branch location.
Meanwhile, mainland businesses can expand quickly right across the Emirates, leasing ever-larger premises and applying for unlimited visas.
You've hit your growth capacity in your current free zone
It’s not uncommon to reach a stage where you feel like your business has outgrown its free zone. In other words, you’ve reached your total capacity for growth in your current surroundings.
There are many reasons why this might be the case. Most free zones have clearly defined parameters regarding everything from the size of your premises to the number of employee visas you can apply for. Such limitations can impede on your ability to expand.
As a Dubai mainland business, you’re free to drive growth by expanding to larger premises and taking on more employees to help. There is no upper limit on employee visas – the larger your premises, the higher the number of visas that become available to you.
In addition, your mainland business can operate from multiple locations across the Emirates. If you wish to expand your presence in the UAE by opening an office in Abu Dhabi or Fujairah, the process is simple. Not so for free zone businesses, who must appoint a local service agent to open a branch office of the free zone company. This can be a time-consuming and costly process.
You want to reach out to more local trade markets
Free zones are a great place to do business until you want to branch out to trade with local markets. While not impossible, the process can be a little cumbersome and requires the assistance of a third party.
To trade with the mainland, free zone businesses must procure the services of a local service agent. This agent is permitted to trade with the local market in the UAE on your behalf, for which they take a fee. Along with the fee taken by the local agent, you may also be required to pay customs tax on any goods traded with the mainland.
Switch your business to the Dubai mainland however, and you avoid both of these problems. Mainland businesses can trade freely with the local market without the services of a local agent. Plus, providing all trading takes place within the local market, customs tax is not applicable.
Also, unlike free zone companies, Dubai mainland businesses are permitted to trade with the UAE government. Government contracts are big business in the Emirates:
- Expo 2020 organisers awarded USD 2.94bn of construction contracts and USD 111.8m of non-construction projects last year.
- In 2017, the Dubai Health Authority (DHA) and Roads and Transport Authority (RTA) made purchases in excess of USD 40m from local SMEs.
- Dubai Statistics Centre made 20% of its total purchases from UAE SMEs last year – the highest percentage among all government agencies.
You've decided to branch out into new products or services
In the lifespan of most companies there comes a time when they move away from their original concept or offering. The business world is full of examples of this:
- Suzuki started out selling loom machines rather than motorbikes.
- Nintendo manufactured playing cards.
- YouTube was originally a video dating site.
The ability to be flexible and branch out into new products or services is vital for young companies. If you’re running a business from a free zone, you could be limited in this respect. Most free zones only permit certain business activities.
Set up in the Dubai mainland, however, and you’re free to move into new arenas as required. Simply register the new activity with the Department of Economic Development (DED), and you’re good to go.
Essentially, your mainland business will have the flexibility to adapt as your offering does. Should your manufacturing business pivot into a parts trading company, for example, it’s relatively easy to move nearer to a port or airport if needed to facilitate your new business model.
Checklist for branching out in the UAE mainland:
- Choose your new business activity
- Work with company registration professionals
- Register your chosen activity with the DED
- Start trading
Ultimately, if the need to expand your business across the UAE arises, Dubai Mainland setup is your preferred option and CREATIVE ZONE can help you transition. The good news is that you can pretty much transition if and when you are ready. In other words, UAE company is all about options, and so you’ll never feel restricted when it comes to your business setup and eventual expansion.
Steve Mayne | Managing Partner – CREATIVE ZONE
Steve Mayne is a founding Managing Partner of CREATIVE ZONE – Dubai’s largest company formation firm, established in 2010. He brings more than 26 years of experience in sales, business consultancy, corporate leadership, and entrepreneurship to his many commercial and community endeavors.
He has also worked with a number of global organisations specialising in logistics and process engineering. With his expertise in workspace solutions and company formation consultancy, he has played an integral role in providing support and advice to many startups and incubation centres.