Dubai’s free zones are well-known for offering businesses a great place to grow, with benefits like 100% foreign ownership and tax advantages. If you’re planning to start a business in one of these zones, you’ll likely come across two popular options: Free Zone Establishment (FZE) and Free Zone Company (FZC).
But what’s the difference between the two? And which one is the right choice for your business? Understanding these business structures is important because it helps you pick the one that best fits your goals and plans.
Let us break down the key differences between an FZE and an FZC in simple terms, so you can make a clear and confident decision about your business setup in Dubai.
What is a Free Zone in Dubai?
A free zone in Dubai is a designated area where businesses can operate with certain privileges and exemptions. These zones are governed by their own set of regulations, separate from the mainland laws of the UAE. This allows for greater flexibility and ease of doing business.
Some of the most popular free zones in Dubai include:
- IFZA (International Free Zone Authority)
- DIFC (Dubai International Financial Centre)
- RAKEZ (Ras Al Khaimah Economic Zone)
- DMCC (Dubai Multi Commodities Centre)
- JAFZA (Jebel Ali Free Zone)
Benefits of Setting Up a Company in a Dubai Free Zone
Business setup in Dubai Free Zone offers multiple benefits to business owners, including:
1. 100% Foreign Ownership
Unlike other business areas, you don’t need a local partner to own your company, giving you full control.
2. Tax Advantages
Enjoy corporate tax exemptions, no import/export duties, and no personal income tax.
3. Simplified Business Processes
Free zones offer a streamlined process for company registration, visa applications, and licensing, saving you time and effort.
4. Repatriation of Profits
You can repatriate 100% of your profits and capital without restrictions, ensuring complete financial flexibility.
5. Industry-Specific Clusters
Many free zones focus on specific industries, such as technology, media, or finance, providing networking opportunities and industry-specific support.
What is an FZE (Free Zone Establishment)?
A Free Zone Establishment (FZE) is a type of business entity designed specifically for Dubai’s free zones. It is a single shareholder entity, meaning it is owned and managed by just one individual or corporate entity. This structure is ideal for entrepreneurs or companies looking for full control over their business operations while benefiting from the advantages of operating in a free zone.
Key Features of an FZE:
- Only one individual or corporate entity can own an FZE.
- There is specific minimum capital requirements set by each free zone authority.
- The owner’s personal assets are protected from the company’s debts and liabilities.
- Foreigners can have full ownership of an FZE.
- FZEs are exempt from corporate and personal income taxes.
- The process of setting up an FZE is relatively straightforward and can be completed quickly.
When to Choose FZE?
An FZE is the right choice if:
- You want full ownership and control of your business without the need for partners.
- You are a solo entrepreneur or a single corporate entity looking to expand operations in Dubai.
- Your business activities align with the requirements and regulations of your chosen free zone.
- You are looking for a simplified setup process with minimal administrative overhead.
What is an FZC (Free Zone Company)?
A Free Zone Company (FZC) is a business entity in Dubai’s free zones that allows multiple shareholders. It is a flexible structure ideal for partnerships or small groups of investors who wish to establish a company in a free zone while enjoying benefits like 100% foreign ownership and limited liability protection.
Key Features of an FZC:
- An FZC can have a minimum of two and a maximum of five shareholders.
- Specific capital requirements and ownership percentages may vary depending on the free zone authority and the nature of the business.
- Similar to an FZE, an FZC offers limited liability protection to its shareholders.
- Foreigners can have full ownership of an FZC.
- FZCs are exempt from corporate and personal income taxes.
- The process of setting up an FZC is relatively straightforward.
When to Choose FZC?
An FZC is a suitable choice if:
- You are entering into a partnership or collaborative venture with multiple stakeholders.
- Your business model involves shared responsibilities, investments, and decision-making among partners.
- You require a structure that allows multiple shareholders to co-own and manage the company.
- You aim to benefit from Dubai’s free zone advantages while working collaboratively with other investors.
Key Differences Between FZE and FZC in Dubai
Understanding the difference between a Free Zone Establishment (FZE) and a Free Zone Company (FZC) is crucial when deciding the best structure for your business in Dubai’s free zones. Here’s a detailed comparison:
| Feature | FZE (Free Zone Establishment) | FZC (Free Zone Company) |
| Number of Shareholders | Single Shareholder | Minimum 2, Maximum 5 Shareholders |
| Capital Requirements | Lower capital requirements | Higher capital requirements |
| Ideal for | Sole proprietorships, small-scale businesses, service-based businesses | Partnerships, joint ventures, family businesses, larger-scale operations |
| Ownership Structure | 100% foreign ownership | 100% foreign ownership |
| Tax Benefits | Exempt from corporate and personal income tax | Exempt from corporate and personal income tax |
| Limited Liability | Yes | Yes |
| Simplified Setup Process | Relatively straightforward | Relatively straightforward |
| Decision-Making | Simple decision-making as only one shareholder is involved | Shared decision-making among shareholders |
How to Set Up an FZE or FZC in Dubai?
Establishing a Free Zone Establishment (FZE) or Free Zone Company (FZC) in Dubai involves a straightforward process. The steps typically include:
1. Choose a Free Zone
Identify the free zone that aligns with your business activities and goals. Popular options include DMCC, IFZA, RAKEZ, DIFC, and JAFZA.
2. Determine the Business Activity
Select the type of business activity you wish to undertake, as free zones offer specific licenses for activities like trading, services, and manufacturing.
3. Select the Legal Structure
Decide whether to establish an FZE (single shareholder) or FZC (multiple shareholders). Ensure the structure matches your ownership and partnership requirements.
4. Reserve a Trade Name
Choose a unique trade name for your business that complies with Dubai’s naming regulations. Submit the chosen name for approval to the respective free zone authority.
5. Submit Initial Approval Application
Provide basic information about your business and shareholders to receive initial approval from the free zone authority.
6. Prepare and Submit Documents
Required documents include:
- Passport copies of shareholders and managers
- Proof of address (utility bills)
- Memorandum of Association (MOA), if applicable
- Bank reference letters or other financial documents
- Additional documents may vary based on the free zone
7. Lease Office Space
Choose an appropriate office space, whether it’s a physical office, shared desk, or virtual office, depending on your business needs.
8. Apply for the Business License
Submit all documents and pay the necessary fees to obtain the business license, which legally authorizes you to operate in the free zone.
9. Obtain Visas
Apply for residency visas for yourself, your shareholders, and employees, if required. The free zone authority facilitates visa processing.
10. Open a Corporate Bank Account
Choose a local or international bank in Dubai to set up your corporate bank account. Provide your trade license and other required documents to complete the process.
How Shuraa Can Help
Deciding between an FZE and an FZC in Dubai is an essential step when starting your business in Dubai. The right choice depends on your business goals, ownership needs, and the way you want to operate. Knowing the differences between the two can help you make the best decision for your business.
At Shuraa Business Setup, we specialize in helping entrepreneurs and businesses set up their companies in Dubai, whether in free zones or on the mainland. Our experts will guide you in choosing the structure that fits your needs and handle everything from paperwork and licensing to compliance.
We’re here to make your business setup process easy and stress-free. Get in touch with Shuraa today and let’s bring your business idea to life in Dubai.