Mainland Access & Dubai Resolution No. 11 of 2025

Historical Framework: Restrictions on Free Zone Companies Operating in the Mainland

For many years, free zone companies in Dubai operated under a strict geographical confinement, permitted to conduct business exclusively within the boundaries of their respective free zones. This framework necessitated specific workarounds for entities wishing to engage with the broader UAE mainland market. Typically, to operate onshore, a free zone company was required to either contract with a third-party agent or distributor, register a separate mainland branch, or establish a distinct onshore presence, often in the form of a new mainland company. 

Historically, many sectors on the mainland mandated a local Emirati partner holding a majority stake (51%), although recent reforms have allowed for 100% foreign ownership in numerous mainland activities as well. These requirements imposed significant administrative overhead, additional compliance burdens, and substantial financial costs, making direct mainland engagement a complex and expensive endeavor for free zone entities.  

Dubai Executive Council Resolution No. 11 of 2025  A New Era of Flexibility

Dubai Executive Council Resolution No. 11 of 2025, announced on March 17, 2025 , represents a groundbreaking development aimed at fostering economic growth and providing unprecedented business flexibility for free zone entities in Dubai. The Dubai Department of Economy and Tourism (DET) is tasked with publishing a list of approved activities by September 3, 2025.  

This Resolution applies to all Dubai free zone entities that intend to conduct business activities outside their designated free zone on the mainland, with one notable exception: financial institutions licensed by the Dubai International Financial Centre (DIFC) are exempt from this policy. Prior to this Resolution, free zone entities were legally restricted to their zones, often resorting to third-party arrangements or establishing separate onshore presences to access the mainland market.  

The Resolution introduces three distinct types of licenses or permits that free zone entities can apply for through the DET to facilitate mainland operations:

License Type	Requirements	Fees (AED)	Validity
Branch of an entity	Existing requirements for registering an onshore branch must be followed.	As per existing requirements.	One year
Branch of an Entity with its headquarters in the relevant free zone	Submission of required documentation to the DET, approval of the DET, and approval of any other relevant UAE authority regulating the entity’s activities.	10,000	One year
Temporary permit for the Entity to practice certain activities onshore in Dubai	Submission of required documentation to the DET, approval of the DET, and approval of any other relevant UAE authority regulating the entity’s activities.	5,000	Six months

Strategic Advantages for Businesses

The new Resolution offers significant strategic advantages for businesses:

• Direct Engagement: It enables direct participation in government contracts and onshore business activities, eliminating the need for intermediary involvement.  
• Reduced Administrative and Financial Burden: Companies can avoid the complexities and costs associated with establishing and maintaining a separate mainland entity, leading to reduced overheads.  
• Enhanced Market Accessibility: The policy fosters direct relationships with consumers and business partners across the broader UAE market, providing greater opportunities for scaling operations and diversifying revenue streams.  
• Dual Advantage: Businesses can now leverage the established benefits of free zones, such as 100% foreign ownership and full profit repatriation, while simultaneously gaining access to the expansive mainland market. 

Compliance Considerations under the Resolution

While offering new flexibilities, the Resolution also introduces critical compliance requirements:

• Regulatory Adherence: Entities operating onshore must strictly comply with all relevant federal and local rules and regulations pertaining to their specific activities. This necessitates continuous monitoring of legislative developments in both the free zone and mainland jurisdictions.  
• Separate Financial Records: A crucial provision mandates that entities permitted to operate in mainland Dubai must maintain separate financial records for their onshore operations. This requirement directly influences corporate tax treatment, implying that income generated from mainland activities will be subject to the standard 9% corporate tax rate, while qualifying free zone income may still benefit from the 0% rate. This demonstrates a sophisticated regulatory design that expands market access without undermining the newly introduced federal tax regime. Businesses must implement robust internal accounting and legal separation to accurately distinguish between free zone and mainland revenues and expenses.  
• Transitional Period: A one-year transitional period has been set to allow existing entities currently operating outside their free zone in Dubai to comply with the provisions of this Resolution.  

Implications of the 2023 UAE Federal Corporate Tax

The UAE has introduced a federal Corporate Tax (CT) regime, marking a significant shift in its fiscal policy. This section provides an overview of this new tax and its specific implications for businesses operating within free zones.

Overview of the UAE Corporate Tax Regime

The UAE implemented a federal Corporate Tax on the net profits of businesses, which became applicable either on June 1, 2023, or January 1, 2024, depending on the business’s financial year.  

The introduction of the CT serves several strategic objectives: it aims to solidify the UAE’s position as a leading global business and investment hub, accelerate its economic development and transformation, and reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.  

The CT applies broadly to all businesses and individuals conducting commercial activities under a license in the UAE. This includes free zone businesses (subject to special provisions), foreign entities engaged in ongoing trade, banking operations, and businesses involved in real estate management, construction, development, agency, and brokerage activities.  

Taxable Income	Corporate Tax Rate
Up to AED 375,000	0%
Exceeding AED 375,000	9%
Large Multinationals (OECD Pillar Two criteria)	Different, unspecified rate (15% minimum from Jan 2025)

Application to Free Zone Businesses: The “Qualifying Free Zone Person” (QFZP) Status

The UAE’s corporate tax regime is designed to preserve existing tax incentives for free zone businesses, provided they adhere to all regulatory requirements and do not conduct business directly in the UAE mainland. To benefit from the 0% corporate tax rate on qualifying income, a free zone entity must achieve and maintain the status of a “Qualifying Free Zone Person” (QFZP).  

The stringent conditions for QFZP status, particularly the requirement for “adequate substance” and compliance with “Economic Substance Regulations (ESR)” , signify a departure from purely nominal presences in free zones. This approach reflects the UAE’s dedication to international tax transparency standards, such as those aligned with OECD BEPS Pillar Two. This ensures that tax advantages are intrinsically linked to genuine economic activity within the free zone, compelling businesses to demonstrate real operational presence rather than just a registered address.  

Condition	Description
Be a Free Zone Person	The entity must be a juridical person incorporated, established, or registered in a free zone, including a branch of a non-resident person registered in a free zone.
Maintain Adequate Substance	The QFZP must conduct core income-generating activities within a free zone and possess adequate assets, qualified employees, and operating expenditures.
Derive Qualifying Income	The income must fall under the specific definition of “Qualifying Income” as per Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023.
Not Have Elected to Be Subject to the Standard Corporate Tax Regime	A QFZP must not have chosen to be taxed at the standard 9% rate.
Comply with Transfer Pricing Rules and Documentation Requirements	Transactions with related parties must be conducted at arm’s length, and proper documentation must be maintained.
Meet the De Minimis Requirements	Non-qualifying revenue should not exceed 5% of total revenue or AED 5 million, whichever is lower.
Prepare Audited Financial Statements	The entity must maintain audited financial statements in accordance with International Financial Reporting Standards (IFRS).

Definition of “Qualifying Income”:

Qualifying Income for a QFZP includes income from transactions with other Free Zone Persons (excluding Excluded Activities), income from transactions with Non-Free Zone Persons (provided it is derived from Qualifying Activities), income from the ownership or exploitation of Qualifying Intellectual Property (QIP), and any other income that meets the de minimis requirements. Qualifying activities generally encompass manufacturing, processing, trading of qualifying commodities, holding shares for investment, ship operations, reinsurance, fund/wealth/investment management, headquarter services, treasury/financing services to related parties, aircraft financing/leasing, distribution, logistics, and ancillary activities.  

“Excluded Activities”:

Income from activities such as banking, insurance, finance, leasing, and the ownership or exploitation of immovable property (other than commercial property located in a free zone) does not qualify for the 0% tax rate. Specifically, income from real estate held (except commercial property within the free zone leased to other free zone businesses) is subject to the 9% tax rate.  

Consequences of Failing to Meet QFZP Conditions:

Failure to meet any of the QFZP conditions, including exceeding the de minimis threshold, results in the loss of eligibility for the 0% corporate tax rate. The company will then be subject to the standard 9% corporate tax on all its taxable income (not just the non-qualifying portion) for the current tax period and the subsequent four tax periods. The “de minimis” rule is a critical compliance threshold; exceeding this seemingly small limit results in a severe financial consequence, compelling free zone companies to meticulously track and manage all revenue streams to avoid significant tax implications.  

Tax Treatment of Mainland Operations under Resolution No. 11 of 2025

The Dubai Executive Council Resolution No. 11 of 2025 mandates that free zone entities operating in mainland Dubai must maintain separate financial records for their onshore operations. This provision implies that the standard 9% corporate tax rate will apply to the income generated from these mainland business activities, unless that income is otherwise specifically exempt. This creates a clear tax distinction between free zone and mainland activities, even when conducted by the same legal entity. 

The combined effect of Resolution No. 11 of 2025 and the Corporate Tax Law means that a single free zone entity can now effectively operate under two different tax regimes simultaneously: 0% on qualifying free zone income and 9% on mainland-derived income. This complex scenario necessitates sophisticated internal accounting systems and potentially separate legal entities for distinct business lines to optimize tax positions and ensure compliance.  

Operational Framework and Compliance Requirements

Establishing and operating a business in Dubai’s free zones involves a structured process and ongoing compliance obligations.

General Business Setup Process in Dubai Free Zones

The typical steps for setting up a business in a Dubai free zone include:

1. Choose Your Business Setup Type and Activities: The initial step involves defining the nature of the business activity, such as commercial trade, consultancy, industrial production, e-commerce, or freelancing. This decision is crucial as it determines the appropriate license type, the most suitable free zone, and the overall operational scope. Dubai offers over 2,000 registered business activities.  
2. Select a Free Zone: Companies must choose a free zone that aligns with their specific industry focus and business requirements.  
3. Choose and Register Your Company Name: The proposed trade name must be unique, adhere to UAE naming conventions, and avoid any sensitive or offensive language. It must be officially registered with the relevant Free Zone Authority.  
4. Apply For Your License: Submission of the required documentation, including the completed application form, passport copies of shareholders, a business plan, and the Memorandum and Articles of Association (if applicable), to the chosen Free Zone Authority is necessary. Common license types include Trade, Service, Industrial, Professional, Freelancer, E-commerce, and General Trading.  
5. Lease Office Space: While a physical address is generally mandatory for businesses in Dubai Free Zones, some zones offer flexible alternatives like flexi-desks or virtual offices, particularly for freelancers.  
6. Obtain a Visa: This is a critical step for business owners, employees, and their dependents. The process typically involves securing an entry permit, undergoing medical fitness tests, and completing Emirates ID registration.  
7. Open Your Corporate Bank Account: To finalize the setup, a corporate bank account must be opened in the UAE, requiring submission of the trade license, passport copies, business plan, and proof of office lease.

Annual Compliance: Audit Requirements

Many prominent free zones in Dubai, including the Dubai International Financial Centre (DIFC), Jebel Ali Free Zone (JAFZA), Dubai Multi Commodities Centre (DMCC), and Dubai Airport Free Zone Authority (DAFZA), mandate annual external audits. While some free zones may offer exemptions for small businesses, maintaining accurate financial records is always recommended.  

Companies in the UAE are primarily required to follow International Financial Reporting Standards (IFRS) or IFRS for SMEs for their financial reporting. Submission deadlines for audited financial statements vary by free zone, typically ranging from 90 to 180 days after the financial year-end. Most companies in the UAE adhere to a December 31st financial year-end.  

Audits generally focus on verifying financial accuracy, confirming operational presence, ensuring compliance with free zone regulations, adhering to economic substance requirements, and validating that related party transactions are conducted at arm’s length. Required documents for an audit typically include audited financial statements, trial balance, general ledger, bank statements, sales and purchase invoices, payroll records, a fixed asset register, the current trade license, Memorandum and Articles of Association, and relevant board resolutions. Failure to comply with audit requirements can lead to severe penalties, including fines and potential loss of tax exemptions.  

The increasing regulatory scrutiny, particularly regarding mandatory audits for major free zones , adherence to IFRS , and the specific conditions for the 0% corporate tax rate (QFZP, ESR, de minimis) , indicates a clear trend towards greater regulatory convergence with mainland standards and a stronger emphasis on actual economic substance. This implies that the compliance burden is increasing across the board, requiring businesses to be more sophisticated in their internal controls and reporting.  

Value Added Tax (VAT) in Free Zones

VAT registration is mandatory for businesses in the UAE if their taxable supplies and imports exceed AED 375,000 in the preceding 12 months, or if they are expected to exceed this threshold within the next 30 days. Non-UAE resident businesses must register irrespective of value if no other party is obligated to pay the tax. Businesses with a turnover between AED 187,500 and AED 375,000 can opt for voluntary VAT registration.  

The standard VAT rate in the UAE is 5%. Exports are zero-rated (0% VAT) but must still be reported to the Federal Tax Authority (FTA). Transactions between two free zones may also be VAT-exempt. VAT filing periods are typically quarterly for companies with revenue below AED 150 million and monthly for those above this threshold. Returns must be submitted within 28 days of the end of the VAT period. Penalties for non-compliance include an AED 20,000 fine for late registration and additional fines for late filing. 

Given these substantial penalties, proactive engagement with regulatory requirements is not merely a procedural step but a critical strategic imperative. Businesses must invest in expert guidance for setup, ongoing accounting, tax planning, and legal compliance to avoid significant financial repercussions and operational disruptions.  

UAE Labor Law: General Provisions and Free Zone Specifics

The UAE Federal Labor Law (Federal Decree-Law No. 33 of 2021) governs all employees in the UAE private sector, including both UAE nationals and expatriates. While free zones possess the autonomy to establish specific employment regulations, these must generally align with the overarching federal law.  

Key provisions and recent changes (as of 2025) include:

• Fixed-Term Contracts: All private sector employment contracts are now mandated to be fixed-term, with a maximum duration of three years.  
• Expanded Leave Entitlements: Maternity leave has been extended to 60 days (45 days at full pay, 15 days at half pay), paternity leave is formalized at 5 paid days (applicable to both mainland and free zone companies), and study leave of 10 paid days per year is introduced after two years of service. Annual leave is 30 calendar days after one year of service.  
• Overtime Pay: Clearer provisions for overtime compensation include 125% for regular overtime and 150% for work during holidays or between 10 PM and 4 AM. Overtime is capped at two additional hours per day.  
• Non-Compete Clauses: These clauses are now regulated to be reasonable in scope, capped at two years, and may require employer-paid compensation during the restriction period.  
• Dispute Resolution: The Ministry of Human Resources and Emiratisation (MOHRE) can issue binding decisions for claims up to AED 50,000. Employers may also be required to continue salary payments for up to two months during unresolved disputes.  
• Free Zone Specifics: Free zone employees are typically sponsored by the relevant free zone authority, rather than directly by their employers. A bank guarantee is often required from employers to secure employee dues and end-of-service benefits. Some free zones, such as the Abu Dhabi Global Market (ADGM), have introduced specific provisions, including mandatory written contracts within one month of employment, formal recognition of remote workers, and extended parental leave to include adoptive parents and cases of stillbirth.  

Feature	Mainland UAE	Free Zone UAE
Ownership	Historically required Emirati partner (51%), now 100% foreign ownership in many sectors	Generally 100% foreign ownership
Market Access	Direct access to entire UAE market, including government contracts	Restricted to free zone boundaries; new Resolution 11 of 2025 allows mainland access via specific permits
Office Requirements	Typically requires physical office registered with Ejari	Varies; some require physical office, others allow flexi-desks or virtual offices
Corporate Tax	0% up to AED 375k, 9% above AED 375k	0% for Qualifying Free Zone Persons (QFZP) on qualifying income; 9% on non-qualifying income or if QFZP conditions not met
VAT Registration	Mandatory if taxable supplies > AED 375k; voluntary > AED 187.5k	Same thresholds as mainland; exports zero-rated; inter-free zone transactions may be exempt
Annual Audit	Mandatory for most legal forms (LLCs, PJSCs, etc.)	Mandatory for many prominent free zones (DIFC, JAFZA, DMCC, DAFZA); some exemptions for small businesses
Labor Law	Governed by Federal Labor Law	Governed by Federal Labor Law, but free zones may have specific regulations; employees sponsored by free zone authority
Capital Repatriation	Full repatriation	Full repatriation
Import/Export Duties	Generally applicable	Exempt within free zone, but may apply if goods enter mainland

Conclusion

Dubai’s free zones remain a top choice for investors, offering full foreign ownership, tax relief, and easy business setup. With Resolution No. 11 of 2025, companies now have more flexibility to operate in both free zones and the mainland.

However, this flexibility comes with tighter compliance. From corporate tax rules to audited financials and labor laws, businesses must stay aligned with new standards to retain their benefits and grow confidently in the UAE market.