The recent Executive Council Resolution No. (11) of 2025 enables companies licensed by free zone authorities to extend their operations beyond the designated zone into mainland Dubai with Dubai Economy and Tourism (DET) permit approval.
The rules surrounding free zone business operations are that theoretically, free zone companies can only operate within their zones’ borders and internationally. A company in a free zone, therefore, cannot directly sell goods or services into the mainland UAE. Instead, they are required to use a mainland-licensed distributor or agent who acts as an intermediary.
Executive Council Resolution No. (11) of 2025
While the lines of these rules are blurred for some, the new resolution provides clear conditions in which free zones can conduct business in the Dubai mainland. The Executive Council Resolution No. (11) of 2025 allows for free zone companies to establish a branch in Dubai mainland.
This is not necessarily a new concept as free zones have historically been able to establish a mainland branch or apply for a Dual License, but it does bring attention back to the requirements for free zones wanting to conduct business in the mainland, legally.
Corporate tax
This has become particularly relevant since the introduction of the corporate tax (CT) in the UAE. When the 9 percent CT rate was introduced to mainland UAE, it caused confusion on how to calculate taxable income from mainland generated business versus the tax holiday benefit that many free zones provide.
When a Dubai free zone company expands to the mainland, its corporate tax profile shifts from potentially tax-free to partially taxable.
Mainland operations
Income earned from any mainland Dubai activities will be subject to the standard 9 percent UAE corporate tax. In practice, this means a free zone company opening a mainland branch must pay 9 percent corporate tax on the profits attributable to its mainland operations. By contrast, purely free zone operations that qualify for incentives remain taxed at zero percent on qualifying income.
For example, if a free zone entity establishes a mainland branch, the branch’s profits are treated as non-qualifying income under the Corporate Tax Law and taxed at 9 percent, while the company’s income from within the free zone can continue to enjoy the zero percent rate (assuming conditions are met).
Segregation of financial records
The new Dubai resolution itself emphasizes that companies must maintain distinct books of account for their free zone and mainland activities. This segregation of financial records is important for corporate tax purposes. It allows accurate calculation of income that remains tax-free (qualifying free zone income) versus income that is taxable from mainland operations.
Regulators will expect clear accounting separation to ensure the free zone benefits are not misapplied to mainland revenues. In practice, a company may need to prepare segmented financial statements – one for the free zone unit and one for the mainland branch or subsidiary – and possibly have each segment independently audited.
Tax applications
If the mainland presence is a branch (not a separate legal entity), the free zone company files a single return combining both free zone and mainland results – applying the zero percent rate to qualifying income and 9 percent to income attributable to mainland branch. This necessitates careful internal accounting to categorize transactions properly.
If the mainland operation is a separate entity (subsidiary), that entity must register and file its own return. In all cases, timely payment of any tax due on mainland profits and adherence to filing deadlines are mandatory to avoid penalties.
The Executive Council Resolution No. (11) of 2025 acts as a reminder as to how to distinguish between business conducted in the free zone versus the CT rates that will apply to the free zone’s mainland branch business, providing clear guidelines for the operations and tax obligations.
Arun Gurung is finance director at Sovereign PPG.
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