Dubai Freezones: The Latest Government Reforms Entrepreneurs Need to Know
For decades, Dubai's business environment has operatedon a dual-track system: the agile, foreign-owned free zones and the vast mainlandmarket. A company chose one path, each with distinct advantages andlimitations. That era has now reached a turning point.
In a landmark policy move, the Emirate has officiallylaunched the Free Zone Mainland Operating Permit (FZMOP). This initiativeallows free zone companies to conduct commercial activities directly within theDubai mainland without needing to form a separate mainland entity. Introducedunder the Dubai Executive Council Decision No. (11) of 2025 by His HighnessSheikh Hamdan bin Mohammed bin Rashid Al Maktoum, this reform signals a newphase of economic integration for the city.
Bridging Two Economic Worlds
Dubai's leadership has consistently worked to solidify the city's position as a global hub for entrepreneurship. The establishment of specialized free zones, dedicated to technology, media, finance, and logistics,has been a cornerstone of this strategy. These zones offer 100% foreign ownership, tax advantages, and streamlined administration, attracting a multitude of international companies.
However, a notable constraint existed. A free zone company was generally limited to operating within its zone or trading internationally. Engaging with the local Dubai market required setting up aseparate mainland company or working through a local agent. This separation created operational friction, duplicated costs, and restricted free zone firms from easily participating in local projects or government tenders.
The Free Zone Mainland Operating Permit is the direct solution to this challenge. It represents a step towards unifying Dubai's economic ecosystem, fostering cross-sector collaboration, and offering investors unprecedented flexibility.
The Legal Framework
The reform is built on a solid legal foundation. Dubai Executive Council DecisionNo. (11) of 2025 provides the statutory authority for free zoneestablishments to conduct activities outside their zones under specificconditions.
The decision clearly outlines the roles of the Department of Economy and Tourism (DET), operating through its licensing arm, the DBLC, and the Dubai Free Zone Council (DFZC). These bodies are jointly responsible for implementing the permit framework, ensuring compliance, and coordinating with individual free zone authorities.
Under this resolution, free zone companies can accessthe mainland through one of three channels: establishing a formal mainland branch, setting up a branch operating from a free zone, or obtaining atemporary permit for specific activities. The FZMOP falls into this thirdcategory, which is a flexible, temporary authorization designed for market exploration and project-based work.
How the Free Zone Mainland Operating Permit Functions
The permit is designed for simplicity andaccessibility. Eligible free zone companies can apply through the Dubai Business Registration and Licensing Corporation(DBLC) in coordination with their home free zoneauthority. Upon approval, the company can conduct its licensed activities onthe mainland for up to 6 months, with the option to renew.
Currently, the permit focuses on non-regulated sectors,including technology, consultancy, design, marketing, and general services.This targeted approach allows Dubai to stimulate innovation and collaborationin key growth areas. The list of eligible activities is expected to expand asthe regulatory framework matures.
Two critical operational provisions underpin thepermit:
1. FinancialSeparation: Companies must maintain distinct financialrecords for their mainland and free zone operations. This ensures transparency,simplifies tax reporting, and facilitates proper auditing.
2. WorkforceFlexibility: A significant practical benefit is the abilityfor businesses to use their existing free zone-registered workforce forpermitted mainland operations, reducing administrative overhead and cost.
Tax Implications
The requirement for financial separation isparticularly important for corporate tax compliance. Revenue generated frompermitted mainland activities will be subject to the federal 9% corporateincome tax. Conversely, income derived from operations within the free zone may continue to benefit from preferential tax treatment, provided theentity qualifies as a 'Qualifying Free Zone Person' under Federal Tax Authorityregulations.
This clear distinction provides companies with thecertainty needed to plan their finances and ensures the government can applytax rules fairly and transparently.
Administrative Process and Fees
The application process requires companies to obtainapproval from their respective free zone authority and to provide a valid tradelicense, along with other documents stipulated by the DBLC. Depending on theactivity, additional approvals from sector-specific regulators may benecessary.
The fee structure is straightforward:
· The cost for issuing or renewing the temporary FZMOPis AED 5,000.
· Establishing a more permanent branch operating out ofa free zone carries an annual fee of AED 10,000.
These fees are modest compared to the cost ofestablishing and maintaining a separate mainland company, making thepermit a compelling option for market expansion.
The Strategic Impact on Dubai's Economy
The introduction of this permit is a pragmatic answerto long-standing structural barriers. Its effects are expected to be feltacross the economy:
· For Free ZoneCompanies: New revenue streams become accessible.Businesses can now engage directly with local clients, bid on public sectorcontracts, and form partnerships with mainland entities, all while retainingtheir free zone benefits.
· For the Government: The policy encourages the formalization of business activities,increases transparency, and ensures appropriate taxation on mainland-derivedrevenues.
· For the Ecosystem: Startups and SMEs in free zones can test the mainland market withminimal risk, fostering entrepreneurship. The entire business environmentbecomes more fluid, integrated, and competitive.
This reform demonstrates Dubai's commitment toevolving its regulatory framework in line with the needs of modern globalinvestors, who prefer flexibility, efficiency, and simplicity. The wall betweenthe free zone and the mainland has not been torn down, but a major and highlystrategic gate has been installed.
