Understanding the Free Zone vs. Mainland Setup for Car Dealerships in the UAE

10 Jun 2024 Helpful Tips


Are you planning on starting a car dealership in the UAE? Starting a Car Dealership or a Car Showroom in the UAE is a lucrative opportunity given the regions strong economy and huge demand for cars. One of the most important factors that all dealers need to consider before starting a car dealership in the UAE is setting up a dealership in a free zone or on the mainland.

Should you start a car dealership in a free zone? Or Should you start a car dealership on the mainland? Both options have their advantages and disadvantages. In this blog, EasyCars will dive into the ins and outs of both options helping you understand the differences to make an informed decision.

Let’s get into it.

Free Zone Setup

Free zones in the UAE are specific ares with different regulations that are designed to attract foreign entrepreneurs and investors. A free zone in the UAE offer a range of incentives that include tax exemptions, simplified business setups and the ability to be completely foreign owned.

Pros of Free Zone Setup

  1. 100% Foreign Ownership:
    • One of the biggest advantages of setting up a car dealership in a free zone is that foreign investors can own 100% of the business. Starting a dealership in a free zone removes the need of having a local partner.
  2. Tax Benefits:
    • The second biggest benefit of starting a car dealership in a Free zone is they offer different tax incentives, including exemptions from corporate tax, and VAT. This will significantly reduce your dealerships operational costs.
  3. Simplified Setup Process:
    • The process of setting up a business in a free zone is much more easy and faster than on the mainland. Free zone setups offer a much more streamlined process for business and dealership registration, dealer licensing and visa applications.
  4. Repatriation of Profits:
    • Businesses in free zones can repatriate 100% of their profits and capital. This is a huge benefit and is attractive for many foreign investors to want to remit their profits back to the country of their origin.

Cons of Free Zone Setup

  1. Geographic Limitations:
    • One of the biggest disadvantages of starting a car dealerships in a free zone is that free zone businesses are restricted from directly conducting business in the UAE mainland. To sell cars in the UAE mainland, you would need to work with a local distributor or set up a mainland branch.
  2. Higher Operating Costs:
    • While you do get different tax benefits for starting a car dealership in a free zone, the cost of leasing space in free zones can be higher compared to the mainland.
  3. Market Access Restrictions:
    • Being confined to the free zone will limit your dealerships market reach. Directly accessing the broader UAE market can be challenging and requires going through different UAE regulatory requirements.

Mainland Setup

Mainland companies in the UAE are licensed and governed by the Department of Economic Development (DED) of the respective emirate. The biggest benefit of operating a car dealership in UAE in a mainland setup is it allow businesses to operate throughout the UAE without restrictions.

Pros of Mainland Setup

  1. Unlimited Market Access:
    • Having a mainland setup for your dealership in the UAE allows you to trade directly with the local market, government entities, and conduct business across the UAE without any limitations that are common with a free zone setup.
  2. Flexibility in Business Activities:
    • Mainland dealerships can engage in a wide range of business activities without the constraints imposed on free zone companies. This flexibility can be beneficial for car dealerships in the UAE that are looking to offer services like car rentals, repairs, and maintenance.
  3. More Options for Location:
    • One of the biggest benefits of trading under a mainland setup in the UAE is you have more location options that are in high traffic areas.
  4. Ability to Bid on Government Contracts:
    • Mainland businesses in the UAE are able to participate in lucrative government tenders and contracts, providing additional revenue streams and growth opportunities.

Cons of Mainland Setup

  1. Local Sponsorship Requirement:
    • To operate a mainland car dealership in the UAE you will need a local sponsor or Emirati partner who holds 51% of the company shares. However, this is subject to change and should be researched further as laws can and may change.
  2. Higher Regulatory Compliance:
    • Mainland companies are subject to more stringent regulatory requirements and compliance measures. This includes laws relating to UAE labor, commercial laws, and most importantly reporting.
  3. Higher Tax Burden:
    • While the UAE has a one of the most favourable tax setups for businesses in the world, mainland businesses may not enjoy the same level of tax exemptions as free zone entities.
  4. Complex Setup Process:
    • Setting up a business on the mainland is much more difficult and stringent compared to a free zone setup. To setup a mainland car showroom you will need to gain multiple permits, licenses, and approvals from various government departments.

Final Word,

When it comes to opening a car dealership in the UAE you will need to decide if you are going to operate under a free zone setup or a mainland setup. Both options have their advantages and disadvantages and need to be thoroughly assessed prior to making a decision.

We hope you enjoyed reading this article. To read more articles like this, please visit the EasyCars latest news page here.

DISCLAIMER – The content within this blog does not constitute professional advice and is intended to be general in nature. Please consult with all relevant parties prior to making any decision.

About EasyCars,

EasyCars by Jeal is a UAE Motor Industry Specific, Dealer Management Software that automates the daily tasks of running a motor dealership. Using the latest technologies, EasyCars removes frustrations experienced at the dealership - opening the doors to future growth.

EasyCars features include Simple Stock Management, Automated Advertising, Automatic VAT Calculations, Xero Accounting Integration, Facebook Automotive Inventory Ads, Dealer Websites and Business Reporting in the one central management software.

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