Starting a business in Dubai: free zone or mainland, and what the ATO thinks

Dubai makes it easy to get a trade licence. The hard part is picking the right kind, because it decides who you can sell to, how many visas you get and how your profits are taxed, in the UAE and possibly in Australia.

The short version

• A mainland licence lets you trade anywhere in the UAE. A free zone licence is often simpler and quicker, but it's built for business inside the zone or outside the UAE [4][5].
• UAE corporate tax applies from financial years starting on or after 1 June 2023: 0% on taxable income up to AED 375,000, and 9% above that [1].
• Qualifying free zone companies can pay 0% on qualifying income, but only if they meet the conditions [2]. Small business relief, as set out in 2023, covers tax periods ending on or before 31 December 2026 [3].
• VAT is 5%. Registration is mandatory once taxable supplies pass AED 375,000 over 12 months [6].
• If you're still an Australian tax resident, a UAE company can bring Australian tax consequences, including the controlled foreign company rules [7].

Free zone or mainland: the real difference

Dubai has dozens of free zones, each with its own authority and rules. Familiar names include DMCC in Jumeirah Lakes Towers, Dubai Internet City, Dubai Media City, Dubai Silicon Oasis, Dubai South and the DIFC for financial services. The mainland is licensed by Dubai's Department of Economy and Tourism.

When a free zone fits

A free zone is often the better fit for consultants, freelancers, software and online businesses, and anyone whose clients are mostly outside the UAE. Packages commonly bundle the licence, a desk and one or more visas. Compare the total cost over three years, not the year-one headline price. Visa renewals, Emirates IDs, medical tests and the desk all recur.

When the mainland fits

If you'll sell to UAE consumers, open a café, run a shop, do fit-outs or bid for government work, the mainland is usually the right answer. It costs more in office space, but you aren't fenced in.

How a mainland setup works

The UAE Government portal sets out the standard steps [4]:

1. Choose your activity. There are more than 2,000 business activities, and the activity decides your licence type and any extra approvals.
2. Choose a legal form. For most foreign founders, that means a limited liability company (LLC). Partnerships and joint stock companies also exist.
3. Reserve a trade name and apply for initial approval. This means the government doesn't object. It doesn't mean you can trade yet.
4. Sign the Memorandum of Association and, where needed, a local service agent agreement. The portal notes that businesses wholly owned by non-GCC residents must appoint a UAE local service agent where the rules require it [4].
5. Secure premises. In Dubai, your lease must be registered with Ejari [4].
6. Get extra approvals if your activity needs them, for example from the Central Bank for financial services [4].
7. Pay and collect your licence. The fee must be paid within 30 days of the payment voucher, or the application is cancelled [4].

Foreign investors also need clearance from the residency authority before initial approval [4]. Plan on weeks, not days, for the full mainland process.

UAE corporate tax: what you'll pay

The UAE brought in a federal corporate tax for financial years starting on or after 1 June 2023 [1]. It applies to businesses with a UAE commercial licence, to free zone businesses and to foreign businesses that trade in the UAE on an ongoing basis [1].

The things to get right

• Register. All taxable persons, including free zone companies, must register with the Federal Tax Authority and get a Corporate Tax Registration Number [2]. Late registration attracts a penalty.
• File every year. Returns and payment are due within 9 months of the end of the tax period [2]. You file even if you owe nothing.
• Free zone status is earned, not automatic. The 0% rate only applies to qualifying income, and only if the company meets the conditions in the law, including real substance in the zone [2]. Mainland sales can push you out of the regime.
• Small business relief is time-limited. As published in 2023, it covers tax periods from 1 June 2023 and ending on or before 31 December 2026, for resident businesses with revenue up to AED 3 million. Qualifying free zone persons can't use it [3]. Check the Ministry of Finance for any extension before you plan around it.
• Freelancers. Individuals are only in scope when their business activity meets the conditions set by Cabinet Decision [2]. Check the FTA guidance for the current turnover threshold.

VAT

VAT in the UAE is 5%. You must register once your taxable supplies and imports pass AED 375,000 over the previous 12 months, or if you expect to pass it within the next 30 days [6]. Below that, voluntary registration is possible.

Opening a business bank account

This step often takes longer than the licence. UAE banks run detailed compliance checks on new companies, and they'll typically want:

• your trade licence and Memorandum of Association
• passports, visas and Emirates IDs for shareholders and signatories
• proof of your office and Ejari or free zone lease
• a business plan, expected turnover and the countries you'll deal with
• for Australians, often your Australian business history and bank references

Expect several weeks and follow-up questions. Some banks are more comfortable with certain free zones than others, so ask the zone which banks its companies use. Cheques still matter for rent and some suppliers, and a bounced cheque in the UAE is more serious than at home.

Disputes are serious too. Smartraveller warns that Australians caught in commercial disputes have had their passports held by local firms or courts, and that unpaid debts can lead to detention, even when transiting [8]. Read contracts carefully and don't sign personal guarantees lightly.

The Australian angle: your UAE company and the ATO

This is where many Australian founders get caught. Dubai doesn't tax you personally, but Australia might.

If you're no longer an Australian tax resident

If you've genuinely moved to Dubai and the ATO treats you as a foreign resident, Australia generally doesn't tax your UAE business income. Our guide to a tax-free salary in Dubai and your Australian tax explains the residency tests. There's no Australia–UAE tax treaty to help settle disputes, so your facts matter.

If you're still an Australian tax resident

• Controlled foreign company (CFC) rules. If Australian residents control a foreign company, some of its income can be attributed to them and taxed in Australia each year, even if no dividend is paid. The UAE is an "unlisted" country for these rules. The ATO says CFCs in unlisted countries, undisclosed interests in foreign companies and "tainted" income such as passive income attract its attention [7].
• Central management and control. If you run the UAE company from your kitchen table in Brisbane, the company itself may be an Australian tax resident.
• Dividends. Dividends from your UAE company are assessable in Australia for a resident. With no UAE tax paid, there's no foreign tax offset to reduce them.
• Benefits from the company. The ATO flags loans, debt forgiveness or other benefits from a CFC in an unlisted country to shareholders. These can be treated as dividends [7].
• Disclosure. You'll need to disclose your interest in a foreign company on your Australian return.

Talk to a registered tax agent in Australia who knows the CFC rules before you set up, not after the first year's profits.

A setup checklist for Australians

1. Decide your tax residency first. It changes everything else.
2. List your clients by location. Mostly UAE clients points to the mainland, mostly overseas points to a free zone.
3. Count your visas for you, your family and any staff.
4. Compare total three-year costs across two or three free zones and a mainland option.
5. Register for corporate tax once licensed, and diarise the 9-month filing deadline [2].
6. Watch the VAT threshold each month [6].
7. Start the bank account early and keep your paperwork ready.
8. Brief an Australian tax adviser if you have any ties left at home.

Want to hear how other Australians picked their free zone or found a bank? Ask in Cooee UAE, our Facebook group for Australians in the UAE.

Sources

1. Corporate tax (CT) – u.ae (UAE Government portal)
2. Corporate Tax in the UAE – Ministry of Finance
3. UAE corporate tax: small business relief criteria – CMS (April 2023)
4. Steps to start a business on the mainland – u.ae (UAE Government portal)
5. Foreign direct investment – u.ae (UAE Government portal)
6. Mandatory VAT registration – Federal Tax Authority
7. Controlled foreign entities – Australian Taxation Office
8. United Arab Emirates travel advice – Smartraveller

Keep reading

• A tax-free salary in Dubai and your Australian tax
• Banking in Dubai: salary accounts, credit and bounced cheques
• Your Dubai contract: gratuity, notice and labour law
• Are you still an Australian tax resident once you move?