Yet, all it starts with is the most important choice: the appropriate legal structure. Two of the most common and easily-mixed Free Zone entity types are the FZE (Free Zone Establishment) and the FZCO (Free Zone Company).
Knowing the key distinctions between an FZE and an FZCO is essential to making sure that your company has the best setup for growth, regulation, and capital management. This guide is specifically written for French entrepreneurs and investors, providing a clear comparison to enable you to choose the structure that best fits your strategic vision.
What is a Free Zone Establishment (FZE)?
The Free Zone Establishment, or FZE, is the most basic and streamlined structure option in many of Dubai's Free Zones. The acronym FZE accurately describes its nature: an entity formed by one party.
The Single-Shareholder Model
The most distinctive feature of an FZE firm is its requirement for a single shareholder. This single shareholder may be either a natural person (individual entrepreneur, e.g., French citizen starting a consultancy) or a corporate one (foreign enterprise creating a branch).
The FZE is basically a Limited Liability company (SARL equivalent or LLC) within the framework of the Free Zone, whereby the owner's liability is capped at the share capital of the company and not extend to his or her personal assets.
The Major Benefits of the FZE Structure
For the individual entrepreneur or the conglomerate looking for a simplified branch, the FZE has much to offer:
100% Autonomy and Control: With full ownership of the FZE, you have sole decision-making authority on everything from operations to finances to overall strategy. Best for fast-moving companies that need fast decisions without the bureaucracy of partner or board input.
Simplicity in Administration: An FZE's governance framework is minimal. There is no need for a complicated Memorandum of Association (MOA) outlining shareholder relationships. Management is straightforward and reporting is easy.
Cost-Effectiveness (Overall): Although not always the case for all Free Zones company, setup and maintenance charges annually for an FZE may be less than for an FZCO owing to the less complex administrative and legal necessities.
Clear Legal Status: The form of an FZE is straightforward: the company is separate from the owner, giving the limited liability protection that French investors desire.
When to Use an FZE
The FZE form, also occasionally spelled as F Z E, is the best option for:
Solo Entrepreneurs and Consultants: Those that prefer to legalize their business operations and obtain a residence visa without partners.
Foreign Corporate Branches : A UAE non-company wanting to form a single, wholly-owned branch or entity in a Dubai Free Zone.
Businesses that Need Speed and Control: Any business where rapid execution and having full, shared control are the utmost priorities.
What is a Free Zone Company (FZCO)?
The Free Zone Company, or FZCO, is the fundamental framework for any joint venture, partnership, or business intending to bring in more than one investor. It is the Free Zone counterpart of a conventional multi-shareholder Limited Liability Company (LLC) or Joint Stock Company.
The Multi-Shareholder Model
The fundamental distinction, and most important thing to understand, is that an FZCO needs at least two shareholders and, based on the Free Zone, may have as many as 50 shareholders. The shareholders may be individuals, corporate bodies, or a mix of both.
In most free zones, the acronym FZCO is used synonymously with Free Zone Limited Liability Company (FZ-LLC), but the essential point is the multi-shareholder capability. The legal proper form of FZCO accommodates a cooperative ownership structure.
Advantages and Complexity of the FZCO Structure
An FZCO (also referred to as F Z C or fzc) choice provides flexibility and capacity to grow that the FZE cannot offer:
Expansion and Investment and Investment: The FZCO is naturally structured for expansion. The setup makes it easy to add new partners, raise capital in the form of equity, or support a joint venture organization. This simplifies future expansion more than having to reorganize as a single-shareholder entity.
Shared Liability and Specialization: With several shareholders, the liability and capital contribution are shared, which can reduce the risk to the single investor. Additionally, partnerships enable specialization through diverse expertise and resources, a big attraction for savvy French investors.
Increased Market Perception: Within certain business industries, especially finance and bulk trading, such an FZCO with several well-defined shareholders may be viewed by banks and larger partners as a stronger, more stable, and professionally managed entity.
Governance and Documentation
As a result of the presence of multiple owners, the FZCO form needs to have greater formal and detailed governance:
Memorandum of Association (MOA): A vital document that has to be painstakingly prepared. It states in formal terms the share capital, the duties, the ratio of profits, and the procedure for making decisions among the partners. This is the foundation of the partnership and is vital if future conflicts are to be eschewed.
Board of Managers/Directors: Although the rules are different, an FZCO generally requires a more formalized management structure, e.g., appointed directors or a formal board, which contributes to compliance but results in transparency.
Further Aspects for FZEs & FZCOs
Apart from the number of shareholders, French investors have to take into account practical aspects of every structure in relation to establishment, management, and regulatory modifications.
Capital and Cost Requirements (Depends on Free Zone)
The minimum share capital for an FZE or an FZCO is determined by the Free Zone in question and is not the same throughout Dubai.
| Feature | Share Capital | Setup Cost | Share Transfer |
| FZE (Free Zone Establishment) | Generally lower minimum capital required (e.g., AED 50,000 for certain zones) | Tends to be less expensive due to simpler documentation. | Can be slightly higher due to the complexity of multi-shareholder legal drafting and approvals. |
| FZCO (Free Zone Company) | Often higher minimum capital, reflecting the scale and multiple contributions. | A share transfer is a 100% transfer of ownership to a new single party, or conversion to an FZCO to add a partner. | Allows for partial sale of shares, providing greater exit flexibility for individual partners. |
Both the fze and the fzc (or fzco) forms are subject only to the laws of their issuing Free Zone Authority, an important draw for foreign investors.
Licensing: Both forms can usually acquire Commercial, Professional (Service), or Industrial licenses. The selection of FZE or FZCO does not limit the nature of the business activity, but the number of visas available often relates to the nature of office space rented.
Legal Liability: In both instances, limited liability protection is assured, a core concept that shields the personal assets of the French proprietor from the risks of the company's operations.
Other Forms of Business Structures in Dubai
While the FZE and FZCO are the primary Free Zone entities, French entrepreneurs need to know about two additional prime categories to ensure they opt for the best operating environment.
Branch of a Foreign Company
It is possible for a foreign company to have a Branch Office in one of the Dubai Free Zones. This is treated legally as an extension of the parent company overseas, and not a separate company. The Branch has to follow the same business as the parent company and is mainly utilized in operation purposes, rather than independent ventures.
For companies that want to access the vast UAE mainland market directly, a Mainland Limited Liability Company (LLC) is required. The primary distinction is market access:
Free Zone Companies (FZE, FZCO): Essentially for international trade and business outside the UAE, or inside the Free Zone itself. Selling on the mainland involves hiring a local distributor or opening a mainland branch.
Mainland LLC: Facilitates unlimited trading and service provision within all seven Emirates of the UAE. From 2021, the UAE has permitted 100% foreign ownership of Mainland LLC for the majority of activities, removing the former local partner requirement, making them a suitable choice for a large number of French businesses.
Advantages of Dubai Free Zone Companies
No matter whether you opt for the basic fze structure or the joint fzco model, having your entity in a Dubai Free Zone presents a set of strong economic and legal advantages that appeal strongly to the French investor.
Financial and Tax Advantages
100% Foreign Ownership: This is the foundation of the Free Zone attraction. French businesses are allowed to own 100% of their FZE or FZCO without the necessity of a local Emirati sponsor.
0% Corporate Tax: For the majority of Free Zone businesses, a 0% corporate tax rate is levied on qualifying income for a renewable term, guaranteeing maximum profits.
100% Repatriation of Capital and Profits: No limitations on the repatriation of 100% of your capital and profits to France or any other nation.
0% Personal Income Tax: Dubai, and the UAE, has a no-personal-income-tax policy, which considerably increases the net income of employees and shareholders.
Import/Export Duty Exemption: The imported goods into the Free Zone or exported from the Free Zone are mostly exempt from duties of customs.
Operational and Lifestyle Benefits
Streamlined Setup Process: Free Zone Authorities are established to be business-friendly with a fast-tracked licensing and easy-to-follow bureaucratic process.
Visa Facilitation: Both an FZE and an FZCO enable the company to sponsor residence visas for the shareholders, managers, and employees, including their dependents (children and spouse), giving a clear way for French professionals to live and work in the UAE.
World-Class Infrastructure: Free Zones provide state-of-the-art, purpose-built office space, high-speed connectivity, and highly efficient logistics infrastructure, ideal for global operations.
Selecting Between an FZE and an FZCO
The decision between a Free Zone Establishment (FZE) and a Free Zone Company (FZCO) is based on one question only: Are you going to operate the business yourself or with partners?
A Practical Decision Matrix
| Scenario | Sole Proprietorship | Partnership/Joint Venture | Future Investors | Low-Risk, Small Scale | Large-Scale, Multiple Partners |
| Ideal Structure | FZE | FZCO | FZCO | FZE | FZCO |
| Justification | Full control, quickest setup, simplest administration. You are the only associé (partner). | Required to accommodate 2 to 50 shareholders. Supports shared capital, shared risk, and diverse expertise. | Easier to sell minority stakes or bring on new investors without a major legal overhaul. Built for scale. | Lower operational complexity and typically less expensive to maintain. Ideal for a service-based enterprise. | The necessary legal framework to manage shareholder relationships, voting rights, and capital contributions clearly and securely. |
It should be remembered that future flexibility. While it may indeed be simpler to establish an FZE and later convert it into an FZCO once you have decided to acquire a partner, establishing with an FZCO and attempting to purchase out a partner to become an FZE again is a complicated and expensive legal process, particularly if shareholder arrangements are not absolutely transparent from the beginning.
If there is a high chance of having partners or investors in the first 1-2 years, starting with an FZCO is the safest, most future-proof option.
Need Help Choosing the Right Structure?
It may be confusing to navigate the subtleties of setting up a Free Zone company, particularly the specific rules covering the FZE, the FZCO, and the application of the FZC name within various zones. For French businesspeople, being entirely compliant with UAE and international regulations is crucial in ensuring success in the long term.
Flyingcolour® is a leading consulting company with a long history of assisting global investors, especially French investors, in setting up their operation in Dubai. We are experts at making the process less mysterious, from first consultation to obtaining your visa and corporate banking account.
Personalized Guidance: We don't simply handle paperwork; we guide you to examine your business model so you can identify exactly if an FZE or an FZCO better suits your strategic objectives and capital structure.
Start-to-Finish Assistance: Our services take you through the complete setup process, from preparing the required legal documents (particularly the MOA for your FZCO) to applying for the same to the relevant Free Zone Authority, as well as completing all visa processing.
Multilingual Expertise: Our consultants provide services in French, ensuring smooth communication and a thorough understanding of the regulatory landscape between your home country and the UAE.
Do not leave your company's foundation to chance. Call Flyingcolour® today for a free, no-obligation consultation to make an informed choice about the appropriate legal structure—be it an FZE or an FZCO—and begin your success in Dubai.
FAQs:
Q1: What is the primary distinction between FZE and FZCO in Dubai?
The primary distinction between an FZE and an FZCO is the number of shareholders. An FZE (F Z E) is a one-shareholder organization, i.e., owned by a single person or company. An FZCO (F Z C or FZCO) is a multi-shareholder organization, having a minimum of two and a maximum of 50 shareholders.
Q2: Is FZCO the same as FZ-LLC in Dubai Free Zones?
Yes, in many Dubai Free Zones, the term FZCO (Free Zone Company) is used in the same way with FZ-LLC (Free Zone Limited Liability Company). Both structures indicate a multi-shareholder entity with limited liability and are designed for partnerships. However, investors must always check the specific nomenclature used by their chosen Free Zone Authority.
Q3: Do I, as a French entrepreneur, require a local Emirati sponsor for an FZE or FZCO?
No. One of the strongest advantages of both the FZE and the FZCO forms under Dubai's Free Zones is the provision of 100% foreign ownership. French entrepreneurs need no local Emirati sponsor or partner for either of these Free Zone companies.
Q4: Is one company type, the FZE or FZCO, simpler to convert at a later date?
It is easier and quicker to start with an FZE. To convert an FZE to an FZCO to bring in a new partner is usually not difficult. Converting an FZCO to an FZE (by one partner buying out all other shares) is more complicated, involving the legal erasure of all others' shares and the cancellation/re-drafting of the share agreements.
Q5: Is it possible for an FZE or FZCO to trade directly on the Dubai Mainland?
No. Both Free Zone entities (FZE and FZCO) are legally licensed to do business within their Free Zone and internationally. In order to trade, distribute, or offer services directly to customers or businesses on the UAE Mainland, the company can either: 1) utilize a local distributor/agent, or 2) establish a Mainland Branch of the FZE or FZCO.