Free Zone Company: UAE vs Malaysia vs Mauritius 2026

Free zones are sold on speed and savings, but the real comparison comes down to what happens after incorporation: can you open a bank account, will the tax benefits actually apply, and how much does ongoing compliance cost? Here's an honest look at three popular free zone models in 2026.

The free zone pitch vs. the free zone reality

Every free zone website promises the same things: quick setup, low or zero tax, 100% foreign ownership, full profit repatriation. These claims are technically accurate and practically misleading. The gap between "formed a company" and "running a functional business" is where most of the cost and frustration lives.

I've seen businesses spend $5,000 forming a UAE free zone company, then spend $50,000 over the next year trying to open a bank account, meet substance requirements, and comply with regulations they didn't know existed. The formation is the easy part. Everything after formation is the real test.

UAE free zones: a crowded market with real differences

The UAE has over 40 free zones, each with its own rules, fee structures, and reputations. Three deserve attention for different reasons.

DMCC (Dubai Multi Commodities Centre). The most established and internationally recognized. DMCC has been named the world's top free zone multiple years running, and the recognition matters for banking. A DMCC license carries weight that smaller free zones can't match.

Formation cost: AED 15,000 to AED 50,000 depending on activity type and visa packages. Annual renewal: AED 10,000 to AED 30,000. Office space: DMCC requires a physical office (flexi-desks available from AED 15,000 annually, dedicated offices from AED 40,000+). Total first-year cost including visa for one person: AED 40,000 to AED 100,000.

The DMCC advantage is banking. Major UAE banks (Emirates NBD, Mashreq, ADCB) are more willing to onboard DMCC companies than those from lesser-known free zones. "More willing" still means a 4-8 week process with document requests that feel invasive, but at least the door is open.

IFZA (International Free Zone Authority, Fujairah). Significantly cheaper and faster than DMCC. IFZA has built market share on price: formation from AED 5,750, annual renewal from AED 5,750, and virtual office options. For businesses that need a UAE entity but don't need DMCC's reputation, IFZA delivers.

The tradeoff: banking is harder. Some banks won't onboard IFZA companies at all. Others apply extra scrutiny. If your business model requires a local UAE bank account (rather than a fintech or international banking relationship), IFZA's savings on formation may cost you in banking delays and rejections.

Meydan Free Zone. A middle-ground option in Dubai with competitive pricing and reasonable banking access. Newer than DMCC, building reputation. Formation from AED 7,500, with packages including visa and office options.

The UAE corporate tax complication. Since June 2023, UAE free zone entities face a 9% corporate tax on income that doesn't qualify for the 0% free zone rate. Qualifying income generally means transactions with other free zone entities or foreign transactions meeting certain criteria. Revenue from mainland UAE customers is typically taxed at 9%. The Federal Tax Authority requires careful tracking of qualifying vs. non-qualifying income. Many businesses that formed in free zones expecting zero tax now face partial taxation plus the compliance cost of the bifurcated system.

Malaysia's Labuan: the quiet option

Labuan is a federal territory off Borneo's coast that operates as Malaysia's international business and financial center. It's less flashy than Dubai and less marketed than Mauritius, which is precisely why it's worth examining.

The Labuan tax structure. Labuan companies conducting trading activities pay either 3% of net audited profits or a flat MYR 20,000 (approximately USD 4,300), whichever is lower. Non-trading activities (holding investments, IP licensing) pay zero tax. This is among the most competitive rates available in a jurisdiction that's both OECD-compliant and not on any blacklists.

Substance requirements. Labuan tightened substance rules in 2019. Companies must now:

Have a minimum annual operating expenditure of MYR 50,000 in Labuan (non-trading) or higher amounts for trading entities
Employ a minimum number of full-time employees in Labuan (at least one for non-trading, two for trading)

These requirements are lower than UAE or European standards but they're real. Companies ignoring them risk losing Labuan tax benefits and being assessed under mainland Malaysian rates (24%).

Banking reality. This is Labuan's weakest point. Malaysian banks are cautious about Labuan entities, particularly those owned by non-Malaysians with no physical Labuan presence. Opening a bank account can take 2-4 months and often requires an in-person visit to Labuan (which is not the most accessible destination). Some businesses maintain banking relationships in Kuala Lumpur or Singapore instead, using the Labuan entity for structuring while banking elsewhere.

Who Labuan works for. Labuan excels for: holding companies (zero tax on non-trading income), IP holding structures with Asian operations, and trading companies with profit margins where 3% of net profit is genuinely low. It also works well as a regional holding structure for businesses with Southeast Asian subsidiaries. It's poorly suited for: businesses needing robust local banking, retail operations, or companies without the patience for Labuan's slower-paced bureaucracy.

Mauritius GBC: the Africa and India gateway

Mauritius positions its Global Business Company (GBC) license as a bridge between African and Indian markets and global capital. That positioning is accurate, but the value depends entirely on which markets you're targeting.

The tax framework. Mauritius GBCs face a headline rate of 15%, but an 80% partial exemption credit reduces the effective rate to 3% for qualifying foreign-source income. To qualify, the Financial Services Commission requires the GBC to be managed and controlled from Mauritius, which brings substance obligations.

The India double tax treaty. Historically, this was Mauritius's killer feature. The India-Mauritius DTAA allowed capital gains on Indian investments to be taxed only in Mauritius (at effectively 0%). India amended the treaty in 2017, imposing source-country taxation on capital gains from shares acquired after April 2017. This significantly reduced Mauritius's advantage for Indian investment structures, though it retains benefits for interest income, royalties, and pre-2017 investments.

Africa treaty network. Mauritius maintains double tax treaties with 23 African countries, more than any other comparable jurisdiction. For businesses investing in or operating across sub-Saharan Africa, Mauritius provides treaty-based withholding tax reductions that no other jurisdiction matches. This is Mauritius's genuine competitive advantage in 2026.

Substance requirements. GBCs must:

Be managed and controlled from Mauritius (at least two resident directors)
Maintain a registered office in Mauritius
Keep accounting records in Mauritius
Hold board meetings in Mauritius
Employ qualified staff in Mauritius or engage a licensed management company

Most GBCs satisfy substance through a licensed management company, which provides directors, offices, and administrative staff. Annual management company fees: USD 5,000 to USD 20,000 depending on complexity. Add audit fees (USD 3,000 to USD 8,000), FSC annual fees (USD 1,950), and miscellaneous compliance costs, and total annual maintenance runs USD 15,000 to USD 35,000. Cheaper than UAE substance, but not the "low-cost jurisdiction" some expect.

Banking. Mauritius banking has improved but remains a challenge for non-African businesses. Local banks (MCB, SBM, AfrAsia) serve GBCs but apply thorough due diligence. Account opening takes 4-8 weeks minimum. Businesses without clear Africa or India nexus face more questions. For companies using Mauritius as a genuine Africa gateway, banking works. For companies using it purely as a tax structure, banks are increasingly reluctant.

The honest comparison

Here's what each model is actually good for:

UAE free zone (DMCC or equivalent): Best for businesses that need a physical Middle East presence, serve Middle Eastern or South Asian clients, or want to combine a residence visa with a corporate structure. The zero-tax promise now comes with asterisks (corporate tax on non-qualifying income), but for businesses with genuine foreign revenue and willingness to invest in substance, it remains attractive. Expect to spend USD 25,000 to USD 70,000 annually on total compliance and substance.

Malaysia Labuan: Best for holding structures, IP vehicles, and regional trading companies focused on Southeast Asia. The 3%-or-less tax rate is genuine and sustainable. Banking access is the primary limitation. Expect total annual costs of USD 15,000 to USD 40,000 for substance and compliance.

Mauritius GBC: Best for businesses investing in or operating across Africa, or maintaining legacy India structures. The treaty network with African nations is unmatched. For businesses without Africa or India exposure, Mauritius offers little advantage over Singapore or other alternatives. Annual costs: USD 15,000 to USD 35,000.

What the formation agents won't tell you

Banking is the real bottleneck. All three jurisdictions have banking challenges. Formation takes days; bank account opening takes months. Start the banking process before or simultaneously with formation. Never assume that having a license means getting an account.

Tax "zero" often isn't zero. UAE's qualifying income rules, Labuan's substance conditions, and Mauritius's partial exemption requirements all create scenarios where the effective rate is higher than the headline. Model your actual income streams against the actual rules before committing.

Switching jurisdictions is expensive. Migrating a company from one free zone to another (or to a different jurisdiction entirely) involves dissolution, re-incorporation, contract novation, and banking disruption. Choose carefully the first time. The cheapest initial setup isn't always the cheapest long-term choice.

Your home country still matters. A Labuan holding company owned by a UK tax resident is a UK Controlled Foreign Corporation. A UAE free zone company owned by a German resident faces German CFC rules. Free zone benefits don't override your personal tax residence obligations. Always analyze both ends of the structure.