Setting Up a Free Zone Company in Dubai: The Difference Between an FZE and an FZCO
 

Dubai’s expanding economic landscape continues to attract investors, entrepreneurs, and global corporations. One of the most popular business setup models in the UAE is establishing a company within a free zone authority. Dubai, along with other Emirates, hosts some free zones known internationally for offering tax advantages, ease of setup, 100% foreign ownership, and simplified operational structures. This full ownership is a significant benefit for investors, providing complete control and flexibility. Setting up a Free Zone company is generally easier and faster than establishing a mainland company in Dubai.

When forming a free zone company, investors often encounter two key legal structures: the Free Zone Establishment (FZE) and the Free Zone Company (FZCO)—sometimes written as zone establishment FZE and zone company FZCO. Both structures are governed by the respective free zone authority, but each comes with unique features, shareholder requirements, operational flexibility, and compliance obligations.

An FZE is a single-owner company, where the shareholder can be either an individual or a corporate entity, making it ideal for sole proprietors or single investors seeking complete control. In contrast, an FZCO accommodates multiple owners, allowing for businesses with several shareholders. FZCOs typically require a higher capital investment due to the involvement of multiple shareholders. Choosing between FZE and FZCO should align with your business goals and business plan, ensuring the selected structure supports your objectives and operational needs.

This guide explains the differences between FZE and FZCO, their benefits, limitations, and which structure is best for your business vision. Key factors such as the number of shareholders, desired level of control, and long-term business objectives should be considered when making your decision.

What Is a Free Zone Company in the UAE?

A free zone company is an entity registered under a UAE free zone authority, allowing investors to enjoy 100% foreign ownership without needing a local service agent. These companies operate within designated commercial areas called free zones, where business regulations differ from mainland UAE. Free Zone companies provide privacy and confidentiality for their owners, unlike mainland companies. Both foreign or local companies can establish a presence in the UAE free zones.

The UAE has more than some free zones, each focused on specific industries such as technology, logistics, finance, healthcare, media, trading, and manufacturing. Examples include Jafza, which is a community and ecosystem where industries such as logistics, e-commerce, and petrochemicals thrive. Types of companies that can be established in these free zones include Free Zone Companies (FZCO), Free Zone Establishments (FZE), private joint stock company, and private limited liability companies. An FZCO free zone company is a popular structure for businesses with multiple shareholders.

• Dubai Multi Commodities Centre (DMCC)

• Dubai Internet City (DIC)

• Jebel Ali Free Zone (JAFZA)

• Dubai South

• Sharjah Media City (SHAMS)

• Ras Al Khaimah Economic Zone (RAKEZ)

Jafza is home to over 11,000 businesses contributing significantly to the GDP of Dubai. Jafza helps businesses in key industry sectors to flourish, creating an annual trade value of over $169 billion in 2023. Businesses registered in Jafza generated $190 billion in trade value in 2024.

Each free zone authority offers customised incentives depending on the business activity. Free zone companies have easier access to ports and airports, making international trade a smoother process.

Understanding Zone Establishment FZE

A zone establishment FZE, also known as an FZE company, refers to a Free Zone Establishment—a business entity with only one shareholder. This structure is ideal for a sole owner or sole proprietors.

The single shareholder can be either:

• An individual

• A corporate entity

An FZE is a popular choice for single investors who want 100% control over their operations. It is similar to a sole proprietorship in terms of ownership and control, offering full responsibility and limited liability to the sole owner or sole proprietors.

Key Characteristics of a Free Zone Establishment (FZE)

• One shareholder only (individual or company)

• Minimum capital requirements vary by free zone authority

• Can be a trading, consulting, industrial, or service entity

• No need for a UAE national or local service agent

• Offers limited liability protection

• Ideal for entrepreneurs and solo investors

An FZE structure provides complete control and flexibility.

Understanding Zone Company FZCO

A zone company FZCO, also referred to as an FZCO free zone company—and called FZ-LLC in some free zones—is a Free Zone Company with two or more shareholders. This structure is specifically designed for multiple owners.

Shareholders can be:

• Individuals

• Corporate entities

• A combination of both

Key Characteristics of a Free Zone Company (FZCO)

• Minimum of 2 shareholders, maximum varies by free zone

• Recognised as a limited liability company

• Liability is limited to share capital

• Suitable for partnerships and joint ventures

• Capital requirements are often higher than an FZE

• No need for a local service agent

A zone company FZCO is ideal for multi-owner businesses and those planning investment-based growth.

The Main Difference Between FZE and FZCO

Understanding the difference between FZE and FZCO is essential for choosing the right business structure. Although both are governed by the free zone authority, the distinguishing factors include:

1. Number of Shareholders

• FZE: Only one shareholder

• FZCO: Two or more shareholders

This is the primary difference.

2. Business Structure

• FZE: Similar to a single-member LLC

• FZCO: A full limited liability company with multiple shareholders

3. Capital Requirements

• FZE may have lower capital in some free zones

• FZCO capital varies and is sometimes higher

4. Governance Rules

• FZE has simpler corporate governance

• FZCO requires shareholder agreements, resolutions, and more defined management roles

5. Ownership Flexibility

• FZE is best for individual entrepreneurs

• FZCO is ideal for partnerships, joint ventures, or international expansion

Benefits of Setting Up a Free Zone Establishment (FZE)

✔ 100% Ownership

No local service agent required.

✔ Ideal for Solo Entrepreneurs

Great for consultants, freelancers, e-commerce owners, and investors.

✔ Simple Corporate Structure

Fewer administrative requirements compared to an FZCO.

✔ Limited Liability Protection

Personal assets are protected.

✔ Full Control Over Decisions

Single shareholders enjoy fast decision-making without board approvals.

Benefits of Setting Up a Free Zone Company (FZCO)

✔ Multiple Shareholders

Perfect for co-founders, investors, and group ownership.

✔ Recognised as a Limited Liability Company

Enhances corporate credibility.

✔ Easier to Scale

Additional shareholders allow broader capital investment.

✔ Accepted by All Free Zone Authorities

Most free zone companies are structured as FZCOs.

Common Features Shared by Both FZE and FZCO

✔ 100% foreign ownership

✔ No UAE national partner required

✔ Operate under a free zone authority

✔ No corporate tax for qualifying activities

✔ Easy business setup and renewal processes

✔ Access to world-class infrastructure

Both structures offer significant advantages for international entrepreneurs.

Why Free Zones Are Growing Rapidly in Dubai and the UAE

Dubai is home to some free zones offering business-friendly regulations. Popular free zones in Dubai attract a wide range of businesses, including offshore companies and holding companies seeking asset protection and international reach. Incentives include:

• 0% income tax for qualifying free zone activities

• Full repatriation of capital and profits

• Multi-year licenses

• Modern office facilities

• Simplified customs procedures

• Fast company formation

Dubai free zones provide access to modern infrastructure, including offices and warehouses.

• 0% income tax for qualifying free zone activities

• Full repatriation of capital and profits

• Multi-year licenses

• Modern office facilities

• Simplified customs procedures

• Fast company formation

These factors make free zone companies an attractive option for global investors. Free zone companies in Dubai, including those in Jafza, benefit from 0% corporate tax if they comply with regulations. Additionally, Free Zone companies can repatriate 100% of their profits and capital. Free Zone companies do not pay customs duties on goods they import or export. Offshore companies and holding companies often choose these free zones for their favorable regulatory environment and international business opportunities.

Choosing Between Zone Establishment FZE and Zone Company FZCO

Selecting the right structure depends on:

1. Number of shareholders

If only one, choose an FZE. If two or more, an FZCO.

2. Business activity

Some activities require an FZCO depending on regulatory rules.

3. Investment structure

A multi-investor company is better suited as an FZCO.

4. Long-term expansion

Companies planning growth benefit from the flexibility of an FZCO.

5. Free zone authority requirements

Different authorities have different rules regarding:

• Capital requirements

• Office space

• Documentation

• Shareholder verification

Consulting a professional helps determine the best option.

Costs Involved in Setting Up Free Zone Companies

Costs depend on the chosen free zone authority, business activity, and office requirements.

Typical cost categories:

• Trade license fees

• Registration fees

• Name reservation

• Office rent

• Establishment card

• Visa quota

• Investor visas

FZE and FZCO cost differences often relate to capital requirements and shareholder documentation.

Bank Account Requirements for FZE and FZCO

Opening a bank account is a vital step for any FZE or FZCO company in Dubai, as it enables you to conduct business operations and manage financial transactions efficiently. Most free zone companies are required to have a dedicated corporate bank account to support their business setup and ongoing activities. The specific bank account requirements can vary depending on the chosen free zone and the policies of individual banks.

Typically, Dubai banks will ask for a minimum deposit, which may range from AED 10,000 to AED 50,000 or more, depending on the bank and the nature of your business. Both FZE and FZCO companies must provide essential documentation, such as a valid trade license, memorandum of association, and detailed shareholder information, to open a bank account. In some cases, banks may require a personal visit from the account signatories or, less commonly, a local service agent to finalize the process.

When selecting a bank for your FZCO company or any company in Dubai, it’s important to consider services tailored to free zone businesses, such as multi-currency accounts, online banking, and trade finance solutions. Working with professional service providers can help streamline the account opening process and ensure your business is ready to conduct business from day one.

Mainland Companies Comparison: FZE/FZCO vs Mainland LLC

Understanding the key differences between free zone companies (FZE/FZCO) and mainland companies, such as Limited Liability Companies (LLCs), is crucial for making the right business decision in Dubai. One of the most significant distinctions is the requirement for a local sponsor or partner in mainland companies. Mainland LLCs must have a UAE national as a local sponsor, whereas FZE and FZCO companies in a free zone do not require a local sponsor, allowing for 100% foreign ownership.

Mainland companies can conduct business anywhere in the UAE market, providing broader access to local clients and government contracts. In contrast, FZE and FZCO companies are generally limited to operating within their designated free zone or engaging in international trade, unless they establish a separate mainland entity.

Ownership structure is another key difference: mainland LLCs typically allow up to 49% foreign ownership, while free zone companies offer full foreign ownership. Additionally, mainland companies are subject to corporate tax, whereas FZE and FZCO companies benefit from tax exemptions on qualifying activities within the free zone. However, the ability to access the entire UAE market and participate in government tenders can make a mainland LLC the preferred choice for certain business models.

Joint Venture Opportunities in Free Zones

Free zones in Dubai provide an ideal environment for joint ventures, making them highly attractive to foreign investors seeking to enter the UAE market. FZCO companies, in particular, are designed to accommodate multiple shareholders, making them a popular structure for joint ventures between foreign or local companies.

Free zone authorities actively support joint ventures by offering streamlined company formation processes, business-friendly regulations, and access to world-class infrastructure. Partners in a joint venture can leverage shared resources, expertise, and risk, while benefiting from the flexibility and asset protection that free zone structures provide.

Establishing a joint venture in a free zone allows multiple shareholders to collaborate under a clear legal framework, with the added advantage of 100% foreign ownership and simplified compliance. To ensure a successful partnership, it is essential to draft a comprehensive agreement that outlines ownership structure, profit sharing, and management responsibilities. With the support of free zone authorities, joint ventures can quickly establish a strong presence in the UAE market and beyond.

Intellectual Property Protection in Dubai Free Zones

Protecting intellectual property (IP) is a top priority for businesses operating in Dubai free zones. The UAE has implemented robust laws and regulations to safeguard IP rights, including patents, trademarks, copyrights, and trade secrets. Many free zones have their own IP protection regulations and dedicated dispute resolution mechanisms, providing an extra layer of security for innovative businesses.

Companies in Dubai free zones can register their IP rights with the UAE Ministry of Economy or directly with the relevant free zone authority, ensuring their creations and brand assets are legally protected. The UAE’s membership in international treaties, such as the Paris Convention and the World Intellectual Property Organisation (WIPO), further strengthens IP protection for businesses operating in many free zones.

To maximise protection, it is advisable to consult with IP experts or legal advisors familiar with the UAE’s regulatory landscape. By taking proactive steps, free zone companies can safeguard their intellectual property and maintain a competitive edge in the global marketplace.

Dispute Resolution Mechanisms for Free Zone Companies

Effective dispute resolution is essential for maintaining smooth business operations in Dubai’s free zones. The UAE offers a comprehensive dispute resolution framework, including access to local courts, arbitration, and mediation services. Many free zones have established their own dispute resolution centres, providing efficient and cost-effective solutions tailored to the needs of free zone companies.

The Dubai International Arbitration Centre (DIAC) is a leading institution for resolving commercial disputes involving free zone companies, offering internationally recognised arbitration services. Companies are encouraged to include clear dispute resolution clauses in their contracts and agreements, specifying preferred methods such as arbitration or mediation.

By leveraging the dispute resolution mechanisms available in many free zones, businesses can resolve conflicts quickly and effectively, minimising disruption and protecting their interests in the UAE’s dynamic business environment.

Common Mistakes Investors Make When Choosing FZE vs FZCO

❌ Not reviewing free zone rules

Each free zone authority has its own criteria.

❌ Choosing the wrong structure for expansion

A single-owner FZE may restrict future partnerships.

❌ Neglecting limited liability considerations

Both are LLC-style entities but differ in governance responsibilities.

❌ Assuming all free zones are the same

In reality, some free zones specialize in media, some in trading, some in fintech, and others in logistics.

Which Structure Should You Choose?

Choose FZE if:

• You are the only owner

• You want simple management

• You prefer quick decision-making

• Your business activity does not require multiple investors

Choose FZCO if:

• You have partners or co-founders

• You want an internationally recognised limited liability company structure

• You plan to scale operations

• You want to attract investors

Conclusion

Setting up a company in a UAE free zone is one of the best ways to enter the Middle Eastern market. Understanding the difference between FZE and FZCO is crucial when choosing your company structure. Both offer 100% foreign ownership, tax benefits, and strong investor advantages under a free zone authority. Many free zones allow you to start your business online without coming to the UAE, facilitating a remote registration process. The process of establishing a Free Zone company can be completed online, but certain steps require in-person attendance.

A zone establishment FZE is ideal for single investors, while a zone company FZCO suits partnerships and more complex business ventures. With more than some free zones to choose from, selecting the correct location and structure is essential for long-term success.

How Can Flyingcolour Business Setup Help You?

Flyingcolour Business Setup provides end-to-end consultation for UAE company formation, including:

• Choosing the best free zone authority

• Determining whether FZE or FZCO is best for your goals

• Registering free zone companies

• Preparing all legal documents

• License issuance and renewals

• Visa services and bank account support

• Compliance with free zone regulations

Setting up a free zone company does not require a local agent or local partner, unlike some mainland company structures, where a local partner may be necessary for foreign investors. Free zones allow businesses to easily sponsor residence visas for owners and employees.

• Choosing the best free zone authority

• Determining whether FZE or FZCO is best for your goals

• Registering free zone companies

• Preparing all legal documents

• License issuance and renewals

• Visa services and bank account support

• Compliance with free zone regulations

Their experts simplify the entire process, ensuring fast, cost-effective, and compliant company setup within your chosen free zone. To successfully establish a free zone company, one must choose a free zone, select a legal structure, and apply for a business license. The incorporation process for a free zone company typically involves submitting required documents and paying licensing fees.

• Choosing the best free zone authority

• Determining whether FZE or FZCO is best for your goals

• Registering free zone companies

• Preparing all legal documents

• License issuance and renewals

• Visa services and bank account support

• Compliance with free zone regulations

Their experts simplify the entire process, ensuring fast, cost-effective, and compliant company setup within your chosen free zone.

FAQs 

1. What is the main difference between FZE and FZCO in Dubai?

FZE allows only one shareholder, while FZCO permits two or more. Both are free zone entities with limited liability.

2. Do I need a local service agent for a free zone company?

No. Free zone investors enjoy 100% ownership without a local service agent.

3. Are free zone companies allowed to operate anywhere in the UAE?

They can operate within the free zone or internationally. Mainland operations require additional approvals. Free zone companies primarily focus on international trade and may need a separate entity to operate within the UAE mainland.

4. Which is better for foreign investors—FZE or FZCO?

FZE is best for single owners; FZCO is ideal for multi-shareholder businesses or those planning expansion.

5. Can I convert an FZE to an FZCO later?

Yes, many free zones allow adding shareholders later, converting an FZE into an FZCO.