Can Free Zone Companies Now Operate in the Mainland? Dubai’s Game-Changer

What You Need to Know & What It Means for Entrepreneurs

In October 2025, Dubai unveiled a major regulatory shift that promises to reshape how Free Zone businesses operate. For years, companies incorporated in Free Zones were largely restricted from directly doing business in the UAE Mainland, limiting them from tapping into local contracts, government tenders, and domestic markets. But that’s changing via the Free Zone Mainland Operating Permit scheme.

If you’re a Free Zone company or considering one, this is a must-know.

Free Zone vs Mainland: The Old Divide

To appreciate why this change matters, let’s recap how Free Zone and Mainland business setups have differed until now.

What Is a Free Zone, and Why Choose It?

• A Free Zone (or free trade zone) is a geographically designated jurisdiction in the UAE with a special regulatory regime. 
• Free Zones enable businesses certain perks: 100% foreign ownership, tax incentives (or exemptions), easier import/export rules, and simplified registration for many types of activities.
• Different Free Zones specialise in certain verticals (e.g. media, technology, logistics).
• For many entrepreneurs, Free Zones offer an attractive path: less bureaucracy, full ownership, and cost predictability.

What a Mainland (Onshore) License Means

• A Mainland company operates under the Department of Economic Development or equivalent local authority, allowing business anywhere in the UAE (including local trade), subject to local regulations.
• Mainland setups historically required local partners or sponsors in many cases (though recent reforms have loosened that).
• Mainland license holders can bid for government contracts, sell directly in UAE markets, and operate more freely across jurisdictions.
• One trade-off: they may face more regulatory scrutiny, local office requirements, and sometimes less generous tax or incentive perks (depending on activity).

Because of this split, many Free Zone companies that wanted access to the Mainland had to create a separate Mainland entity or branch, incurring duplication of costs, approvals, and administrative burden.

What’s Changed: The Free Zone Mainland Operating Permit

In October 2025, Dubai’s government introduced a new permit that allows Free Zone companies to legally operate in the Mainland (within Dubai) without forming a full onshore entity. Here are the details:

Legal Basis & Purpose

• The change is backed by Decision No. 11 of 2025 from the Dubai Executive Council, empowering the Department of Economy & Tourism (DET) to issue the new permit.
• The central intent: enable cross-jurisdiction operations, reduce friction, and allow Free Zone firms to bid on Mainland projects and access local markets.
• Rather than forcing companies to duplicate structures, this is a bridge mechanism. 

Scope of Activities & Phase One Rollout

• Initially, the permit covers non-regulated sectors such as:
  
  • Technology
  • Consultancy
  • Design
  • Professional services
  • Trading
    
• Regulated sectors (e.g. health, finance, real estate, or others that require special approvals) are currently excluded but may be integrated later.

Tax & Financial Compliance

• Revenues generated under the Mainland permit are subject to the UAE 9% corporate tax (applied to Mainland-derived profits).
• Companies must maintain separate financial records to distinguish Free Zone operations from Mainland operations.
• This ensures clarity in audit, compliance, and tax assessments.

Workforce & Resource Usage

• Free Zone companies can use their existing employees for Mainland operations; there’s no immediate requirement to hire separate staff.
• This allows resource flexibility and cost optimisation.

Application Process

• Eligible companies must hold a Dubai Unified Licence (DUL) to apply.
• The application is done digitally through the Invest in Dubai (IID) platform.

Projected Impact & Scale

• The initiative is expected to boost cross-jurisdiction trade by 15–20% in its first year.
• Over 10,000 Free Zone companies could benefit by gaining access to local supply chains and government contracts previously off-limits.
• The move is framed as a step toward greater ease of doing business and making Dubai even more investor-friendly.

How This Compares with Past Rules & Branch Licences

Before this permit:

• Free Zone firms wanting to operate in Mainland Dubai often needed to incorporate a separate Mainland company or branch, doubling licensing, office, compliance, and audit burdens.
• Expansion into UAE markets or bidding on government contracts was often blocked or required complex legal constructions.

Other earlier reforms had already allowed Free Zone companies to open branches or licenses in the Mainland with approvals. For example:

• A March 2025 resolution in Dubai allowed Free Zone entities to open branches in Mainland Dubai by obtaining licensing from the Department of Economy & Tourism.
• However, branches often needed full Mainland compliance, multiple approvals, and annual renewals.

The new permit is distinguished by its relative simplicity, lower cost, limited duration (6 months), and bridging function rather than full conversion. It’s more flexible and less heavy compared to full Mainland entity creation.

What It Means: Opportunities & Considerations

Opportunities

1. Access to Local Markets & Government Contracts
   With the permit, Free Zone businesses can bid for UAE domestic contracts, supply chains, and projects previously off limits.
2. Cost Efficiency & Scalability
   No need to set up duplicate structures. Use existing employees and systems to service Mainland clients.
3. Flexibility
   The 6-month renewable nature gives companies the agility to test Mainland operations, adjust strategy, or scale gradually.
4. Enhanced Reach & Credibility
   Operating legally in the Mainland enhances your brand standing in the UAE, boosting trust among clients and partners.
5. Seamless Integration
   For companies already in sectors like tech, consultancy, design, or trading, this permit is especially well-aligned with your core competencies (as these are among the permitted sectors initially).

Key Considerations & Caveats

1. Scope Limitations
   
   • The permit currently excludes regulated sectors. If your business requires licensing in fields like Healthcare, Real Estate, or Finance, you may still need a full Mainland license.
   • Check whether your specific business activity qualifies as “non-regulated.”
     
2. Tax & Accounting Burden
   
   • You must maintain separate financial records for Free Zone vs Mainland operations.
   • Revenue under this permit is taxed at 9%. Misallocation or poor bookkeeping may attract penalties.
     
3. Renewals & Continuity
   
   • The 6-month term means you need to stay on top of renewals. Missing a renewal might disrupt operations.
   • Long-term stability in the Mainland may still favour full Mainland licensing.
     
4. Governance & Compliance
   
   • Though simplified, you will still need to comply with Mainland regulatory norms, inspections, and local reporting.
   • Be cautious of dual compliance burdens (Free Zone + Mainland rules).
     
5. Competitive Dynamics
   
   • As this permit broadens competition in the Mainland, Free Zone firms may now face more direct rivalry from established onshore companies.
     
6. Future Changes & Uncertainties
   
   • Regulatory frameworks may evolve (for instance, inclusion of regulated sectors).
   • Government interpretations, audits, or clarifications may affect implementation. Always verify via official channels.

How This Relates to Vista’s Business Setup Guidance & Free Zone Advice

To ground this in the context of real-world business setup practices, here’s how our offerings and insights align:

• Free Zone Setup Services
  Vista helps entrepreneurs choose the most suitable Free Zone, handles licensing, visa services, PRO assistance, and banking support.
• Mainland License & Company Formation
  We also provide Mainland license services, including paperwork, documentation translation, regulatory compliance, and a smooth setup. 
• Advising on Jurisdiction Strategy
  Our consultants often guide clients toward the optimal tradeoff between cost, market access, regulation, and business flexibility.
• Role of Free Zone Permits
  With this new permit, many of our Free Zone clients may now see a “hybrid” path: start in Free Zone, then expand with the Mainland permit before converting fully. The permit aligns with the dual-scope strategies that setup consultants may already advise.

So if you’ve been considering whether to set up in the Free Zone or the Mainland, or worried about missing out on local contracts, this update bridges a key gap. We or similar consultancy firms will likely incorporate permit logic into their advisory.

Use Cases & Scenarios to Illustrate Impact

Scenario	Previous Challenge	What’s Possible Now
A software startup in the Free Zone wants UAE clients	Could not contract with the Dubai govt / local clients directly	Use a permit to service Mainland clients legally
A design agency in the Free Zone wants to bid on local events	Had to form a new onshore entity	Operate via permit using the same team
An import/export Free Zone trader wanting to open a retail outlet	Retail trade required a Mainland license	Evaluate if a permit or full retail license is viable
A small consultancy experimenting with Dubai expansion	Hesitant to incur full overhead	Use a 6-month permit to test the waters before scaling

These real-world analogies help readers see how this applies to their own business ideas.

Things to Watch & Future Outlook

• Expansion to Regulated Sectors: Observers expect that over time, the permit’s scope will widen to include regulated domains like health, real estate, finance, and more.
• Refinements in Process & Fees: As the pilot progresses, the government may tweak permit duration, pricing, compliance rules, or documentation requirements.
• Integration with Other Initiatives: For example, Dubai is also rolling out the “One Freezone Passport,” which lets companies operate across Free Zones under one license.
• Market Competition Dynamics: Mainland companies will face increased competition from Free Zone players entering local markets.
• Full Mainland Migration Incentives: At some point, companies doing high volume in the Mainland may be incentivised to regularise into full Mainland licensing for stability and regulatory predictability.

Tips for Businesses Considering This Permit

1. Get Expert Advice: Consult a legal or business setup advisor to see whether your activities are allowed and if the permit is optimal for your growth path.
2. Maintain Strict Accounting Discipline: Errors in segregating revenue could lead to audits or penalties.
3. Start Small & Scale: Use the 6-month permit to test market demand, refine offerings, then decide whether to fully onshore.
4. Monitor Regulatory Updates: The law is new; keep an eye on notices from DET, IID, or Dubai’s economy department.
5. Evaluate Long-Term Costs: If your Mainland operations grow substantially, compare the cumulative cost of permits vs full Mainland licensing.
6. Watch Renewal Timing: Don’t let permit lapse. Plan ahead.

Conclusion: A Bridge Between Worlds

The Free Zone Mainland Operating Permit is a bold, pragmatic reform. It doesn’t obliterate the distinction between Free Zone and Mainland, but it lowers the barrier significantly. For entrepreneurs, it unlocks new markets, simplifies expansion, and offers a more flexible approach to scaling in Dubai.

That said, it’s not a silver bullet. Strategic planning, compliance rigour, and keen evaluation remain critical. For many, it will serve as a stepping stone, a “permission slip” to test, expand, and eventually commit to full onshore operations if needed.

Disclaimer: The information in this article is provided for general guidance only and reflects our understanding of public sources as of October 2025. Regulations, eligibility rules, fees, and tax treatments, including UAE Corporate Tax implications for free zone vs. mainland activities, may change and can differ based on your activity, free zone, and specific facts. This article is not legal, tax, or accounting advice and does not create a consultant–client relationship. Always verify requirements with the Dubai Department of Economy & Tourism (DET) / Invest in Dubai, your free zone authority, and the Federal Tax Authority (FTA), and seek advice from qualified professionals before taking action. We are not affiliated with DET, IID, or any government body.