Business Setup in Dubai: Understanding Legal Structures, Formation Processes, and Compliance in 2025

Business Setup in Dubai: Legal Structures, Formation Process and Compliance Framework in 2025

Estimated reading time: 25 minutes

Key Takeaways

• The UAE’s legal framework is governed by federal decrees on companies, tax, VAT, economic substance and AML.
• Mainland, free zone and financial free zone structures each offer distinct ownership, licensing and compliance regimes.
• 100% foreign ownership of mainland entities is possible under Federal Decree-Law No. 32 of 2021, subject to activity lists.
• Integrated compliance stack (tax, substance, beneficial ownership, AML) must be embedded from day one.

1. Introduction: Business Setup in Dubai and the Current Legal Landscape

Business setup in Dubai has evolved into a *highly structured* and legally sophisticated process. Investors must navigate a network of federal decrees, Cabinet Decisions and emirate-level regulations to obtain a trade license on the United Arab Emirates mainland, in ordinary free zones, or in financial free zones. Since 2022, reforms in corporate law, foreign ownership, corporate tax, VAT, economic substance and beneficial ownership have reshaped both cost and process.

As of 14 December 2025, key statutes include:

• Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended by Federal Decree-Law No. 20 of 2025, which introduces significant reforms to corporate governance and entity structures;
• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses;
• Federal Decree-Law No. 8 of 2017 on Value Added Tax (as amended), noting that further amendments under Federal Decree-Law No. 16 of 2025 will take effect on 1 January 2026.

This guide provides a practitioner-level overview of:

• Comparative legal structures: mainland LLC, free zone and financial free zone entity
• Trade license application steps and statutory foundations
• Compliance regimes: tax, economic substance, AML and ultimate beneficial owner rules

2. Core Company Law Framework for Company Registration in the United Arab Emirates

2.1 Federal Decree-Law No. 32 of 2021 on Commercial Companies

Federal Decree-Law No. 32 of 2021, as amended by Federal Decree-Law No. 20 of 2025, regulates the formation, management, governance and dissolution of mainland commercial companies, and introduces enhanced governance mechanisms and structural flexibility. Investors must align their memorandum of association and internal documentation with its model forms and mandatory provisions.

2.2 Types of Legal Structures: Mainland, Free Zones and Financial Free Zones

Dubai offers three main regimes:

• Mainland companies under Decree-Law No. 32, licensed by the Department of Economy and Tourism.
• Ordinary free zones (e.g. DMCC, JAFZA, RAK EZ), following zone regulations but subject to federal compliance laws.
• Financial free zones (DIFC, ADGM), operating under their own common-law regimes and courts but still subject to tax and AML requirements.

3. Foreign Ownership Reforms and Legal Structure for Limited Liability Company versus Free Zone Company versus Ras Al Khaimah Entity

3.1 100 Percent Foreign Ownership under the Current Regime

Under Federal Decree-Law No. 32 of 2021, as amended, and federal government foreign ownership reforms, most mainland commercial activities permit 100 percent foreign ownership, subject to the applicable strategic activity negative list maintained by the licensing authority. However, each emirate maintains a “negative list” of strategic activities requiring local participation or approvals. Always verify activity-specific guidance before finalising structure.

3.2 Comparative Legal Structures: Mainland Limited Liability Company, Free Zone Company and Ras Al Khaimah Entity

Mainland LLC provides a wide activity spectrum and onshore trading but is tied to local licensing and office requirements. Free Zone companies offer 100% ownership, streamlined setup and zone-restricted licenses. RAK EZ entities mirror free zones with cost advantages and flexible office options.

3.3 Financial Free Zones: Dubai International Financial Centre and Abu Dhabi Global Market

DIFC and ADGM operate under their own Companies Law and courts, based on common law. While exempt from Commercial Companies Law, they remain subject to corporate tax, VAT, economic substance and AML regimes. Qualifying free zone persons benefit from 0% tax on qualifying income under Decree-Law No. 47 of 2022.

4. Trade License Application in Dubai: Procedural Steps and Practical Requirements

4.1 Core Procedural Steps for Mainland Companies

Dubai trade license for a mainland company entails:

• Determining legal form and activity classification
• Trade name reservation
• Initial approval application
• Office lease and Ejari registration
• Memorandum of association execution and notarisation
• Licence issuance, followed by labour, immigration and tax registrations

4.2 Free Zone and Ras Al Khaimah Licensing Processes

Free zone setups typically require name reservation, KYC documentation, business plan (for regulated activities), and standard articles templates. Flexi-desk and warehouse options satisfy substance needs. RAK EZ follows a similar model with its own fee structure.

5. Corporate Tax and Value Added Tax: Impact on Business Setup in Dubai Cost and Process

5.1 Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses

Effective for financial years from 1 June 2023, the federal corporate tax is 0% on the first AED 375,000 of taxable income and 9% thereafter. Cabinet Decision No. 116 of 2022 confirms thresholds. Qualifying free zone persons enjoy 0% tax on qualifying income when substance conditions are met.

5.2 Value Added Tax under Federal Decree-Law No. 8 of 2017

Value added tax at 5 percent continues to apply to most taxable supplies under Federal Decree-Law No. 8 of 2017, recognizing that forthcoming targeted amendments effective from 1 January 2026 will refine certain reporting and invoicing provisions. Compliance impacts pricing, contracts and cash flow planning.

6. Beneficial Ownership, Economic Substance and Anti-Money Laundering Compliance

6.1 Ultimate Beneficial Owner and Transparency Requirements

Cabinet Resolution No. 58 of 2020, as subsequently amended by Cabinet Resolution No. 109 of 2023 and applicable Ministry of Economy guidance, requires licensed entities to maintain current Ultimate Beneficial Ownership registers and to file declarations within prescribed timelines. Non-compliance risks penalties, licence restrictions and reputational damage. Integrate beneficial ownership mapping into the earliest drafting of corporate documents.

6.2 Economic Substance Regulations and Relevant Activities

Cabinet Resolution No. 57 of 2020 requires in-scope entities to demonstrate adequate substance (staff, premises, expenditure) and file annual notifications/reports. Failure can trigger tax residency challenges and penalties.

6.3 Anti-Money Laundering, Counter-Terrorist Financing and Wage Protection System

Federal Decree-Law No. 20 of 2018 and sectoral guidelines impose AML/CFT obligations on various businesses and professionals. The Wage Protection System monitors salary payments and can block visas for non-compliance.

7. Memorandum of Association Drafting and Articles of Association Templates

7.1 Statutory Requirements for Mainland Memorandum and Governance

Decree-Law No. 32 specifies core elements for the memorandum: company name, head office, objects, capital, quotas, partner details, profit distribution, management framework and meeting rules. Effective drafting anticipates minority protections, deadlock mechanisms and dispute resolution.

7.2 Notarisation, Language and Translation Requirements

Mainland memoranda must be in Arabic (bilingual forms common) and notarised before a UAE notary. Free zones often accept English-only articles and electronic execution. Customise templates with shareholders’ agreements where needed.

8. Ongoing Corporate Compliance Audit in Dubai and Across the United Arab Emirates

8.1 Statutory Audit and Financial Statements

Most mainland companies and many free zone entities must prepare annual financial statements under applicable standards and engage a licensed auditor. Free zone audit obligations often tie licence renewal to audited accounts.

8.2 Tax, Value Added Tax and Regulatory Filings

Entities must register and file corporate tax returns within nine months of period-end, submit VAT returns monthly or quarterly, and maintain records. Economic substance, beneficial ownership and wage protection filings supplement these requirements.

9. Costs, Timelines and Practical Considerations for Business Setup in Dubai

9.1 Illustrative Cost Ranges and Drivers

Licence fees, name reservation, initial approval and Ejari registration for a mainland LLC often total in the tens of thousands of dirhams. Free zone packages advertise flexi-desk setups from a few thousand dirhams, but office, visa and banking fees must be factored in.

9.2 Timelines and Process Management

Simple mainland incorporations can close in a few working days once documentation and lease registration are complete. Free zone setups may be faster, but bank account opening and visa processing add time. A detailed project plan is essential.

10. Penalties, Enforcement and Risk Management

Administrative fines for tax, VAT, beneficial ownership and economic substance breaches can reach tens of thousands of dirhams per violation. Licence suspensions, visa blocks and criminal referrals are also possible. Proactive compliance, robust internal controls and periodic independent reviews mitigate these risks.

11. Conclusion: Integrating Legal Structure, Process and Compliance in Business Setup in Dubai

Business setup in Dubai in 2025 requires a holistic strategy that aligns legal structure, trade license procedures and an integrated compliance stack. By choosing the appropriate jurisdiction—mainland, free zone or financial free zone—and embedding tax, AML, substance and beneficial ownership obligations from the outset, investors can leverage the UAE’s pro-business environment while maintaining full compliance.

Frequently Asked Questions

What is the difference between mainland and free zone companies?

Mainland companies can trade across the UAE and contract directly with government entities but require local office space and may face foreign ownership restrictions. Free zone companies offer 100% foreign ownership, simplified setup and tax incentives but are generally restricted to zone or international activities.

Can a foreigner wholly own a mainland company?

Yes. Under Federal Decree-Law No. 32 of 2021, 100% foreign ownership is permitted for most activities, subject to the emirate’s negative list and sector-specific approvals.

What is the corporate tax rate in the UAE?

A 0% rate applies on the first AED 375,000 of taxable income; income above that is taxed at 9%. Qualifying free zone persons may benefit from 0% on qualifying income under certain conditions.

Do free zone companies need an office?

Yes. Free zone entities must maintain a registered office, though options range from flexi-desks to full offices or warehouses, depending on the zone.

How long does the business setup process take?

Mainland setups can complete in a few working days for straightforward cases; free zone setups may be faster but bank account opening and visa issuance add additional time. A detailed project plan mitigates delays.