Difference Between FZE and FZC in UAE: Which One to Choose?

Setting up a business in the UAE is a preferred choice for global entrepreneurs and investors. The UAE’s strategic location at the crossroads of Asia, Africa, and Europe provides access to over 2 billion consumers, making it a hub for big businesses, trade & logistics.

The country’s pro-business policies and diverse economy create a strong foundation for growth. Recent reforms allow 100% foreign ownership in most sectors, removing the need for a local partner.

One of the biggest advantages is the UAE’s 40+ free zones, known for:

• Investor-friendly policies
• Tax benefits
• Simplified business setup

Within these free zones, choosing the right legal structure is crucial. Two popular options are the Free Zone Establishment (FZE) and the Free Zone Company (FZC). Understanding the specific requirements and differences between an FZE and an FZC is essential for successful company formation. In this blog, we’ll break down how FZE and FZC work so you can choose the one that fits your business best.

An FZE Company in the UAE is a legal entity designed for a single shareholder. The shareholder can be either an individual or a corporate entity. This structure is akin to a sole proprietorship, but it operates as an independent legal entity with limited liability. The owner’s personal assets are protected from the company’s financial liabilities, which makes it a secure option for a solo entrepreneur.

The FZE model simplifies management and decision-making because a single individual or company holds complete control. This streamlined structure is ideal for those who prefer full autonomy and want to avoid the complexities that come with partnerships.

• Key Features:
  • Single Shareholder: A sole owner, who can be an individual or another company.
  • Limited Liability: The owner’s liability is limited to their invested capital.
  • 100% Foreign Ownership: The FZE structure allows for complete foreign ownership without the need for a local sponsor.
  • Simple Administration: With a single owner, the company has a straightforward management and governance structure.

In contrast, an FZC (also often referred to as a Free Zone Limited Liability Company or FZ-LLC) is a legal structure designed for multiple shareholders. An FZC can have a minimum of two shareholders, and depending on the free zone, it can allow up to 50 shareholders. Like an FZE, an FZC is a limited liability entity, protecting the personal assets of all shareholders.

This structure is a perfect fit for partnerships, joint ventures, and businesses with multiple co-founders. It allows partners to pool their resources, skills, and capital, making it easier to grow and expand. Like an FZE, an FZC also enjoys full repatriation of profits & capital and pays no customs duties on imports or exports within free zones. 

However, managing an FZC is more complex, as it requires a shareholders’ agreement to clearly define roles, responsibilities, and decision-making processes.

• Key Features:
  • Multiple Shareholders: Requires a minimum of two and can have up to 50 shareholders.
  • Limited Liability: All shareholders enjoy protection of their personal assets.
  • 100% Foreign Ownership: Like an FZE, an FZC allows for full foreign ownership.
  • Collaborative Governance: The management and decision-making are shared among the partners.

Understanding the core differences between an FZE and an FZC helps you make an informed decision for your company. While both offer similar benefits, their distinct legal structures cater to different business needs.

• Ownership Structure

The most significant difference lies in the ownership

• FZE: Has only 1 shareholder. This is ideal for individual entrepreneurs or companies with a single owner.
• FZC: Requires between 2 and 50 shareholders. This makes it suitable for partnerships or joint ventures.

The ownership structure influences other areas of the business, such as capital and management.

• Capital Requirements

The minimum share capital requirement for an FZE has now been removed in several UAE free zones, making it an even more accessible option for startups and Small to Medium-sized Enterprises (SMEs). Previously, some FZEs required a minimum capital of AED 50,000, but today, many jurisdictions allow incorporation without any mandatory capital deposit.

In an FZC, while the total capital might be higher, it is shared among multiple shareholders, which can ease the financial burden on individual partners. The cost of a free zone license varies widely depending on the emirate and activity. For instance, a freezone business setup license in Sharjah or Ajman often begins from AED 6,000–8,000, making them attractive to startups. 

In contrast, Dubai free zones usually range between AED 12,000 and AED 50,000 or more. The number of shareholders and the type of license you choose can also affect the overall setup cost.

• Management and Decision-Making

An FZE’s management structure is very straightforward. The single owner has complete control, and all decisions are made unilaterally, which leads to swift and efficient operations. In an FZC, decision-making is a collaborative process. 

A detailed shareholders’ agreement is crucial to outlining voting rights and responsibilities, which ensures smooth operations and avoids conflicts among partners. The more shareholders an FZC has, the more complex its governance becomes.

• Documentation and Setup Process

The setup process for both entities is generally streamlined, but an FZE requires fewer documents. The documentation for an FZE typically includes 

• A passport copy of the single shareholder.
• A business plan.
• Application form.

For an FZC, you need the following documents:

• Passport copies of all shareholders and directors.
• A Memorandum of Association (MoA).
• Articles of Association (AoA), which define the company’s structure and share distribution.

These documents legally define the company’s structure, share distribution, and governance.

Despite their differences, FZE and FZC share many key advantages that make setting up a free zone business in the UAE attractive. Both structures offer significant benefits to businesses.

• Regulatory Advantages

Both FZE and FZC companies benefit from a simplified regulatory environment. Free zone authorities are efficient and known for their business-friendly policies.

• You can enjoy 100% repatriation of capital and profits, meaning you can bring all your earnings back to your home country without restrictions.
• These free zones continue to attract a high volume of foreign direct investment, with the UAE ranking among the top global destinations for business.

• Tax Benefits

One of the most compelling advantages of free zone companies is the tax regime.

• Both FZE and FZC can benefit from a 0% corporate tax rate on qualifying income, which includes earnings from free zone activities or international trade.
• A 9% corporate tax rate applies to taxable income over AED 375,000 for mainland businesses and non-qualifying free zone income.
• Both entities are also exempt from personal income tax, and there are no customs duties on goods imported into the free zone.

• Access to UAE Free Zones

Both FZE and FZC grant access to world-class infrastructure, resources, and the strategic location of the UAE’s free zones.

• These zones often specialize by industry, such as Dubai Media City for media or Dubai Internet City for technology, creating a clustered environment of like-minded businesses.
• This specialization fosters innovation and collaboration, further boosting your business potential.

Selecting between an FZE and an FZC depends on your specific business objectives and ownership model.

You can consider the following factors before making a choice

• Ownership: If you are a solo entrepreneur and want complete control over your business without involving partners, an FZE is the clear choice. If you plan to start a business in Dubai or any other emirate with co-founders or investors, an FZC provides the necessary legal framework for a partnership.
• Growth and Scalability: While an FZE is ideal for a single-owner business, an FZC offers more flexibility for future growth. You can bring in new partners and investors more easily, which can be vital for scaling operations.
• Business Activity: Consider the nature of your business. A service-based consultancy might be a perfect fit for an FZE, while a trading or industrial venture with significant capital requirements may be better suited for an FZC.

The choice between an FZE and an FZC is a critical decision when setting up a business in the UAE. While both offer exceptional benefits, such as 100% foreign ownership and zero corporate tax on qualifying income, they cater to different ownership structures. 

An FZE is the optimal choice for a single entrepreneur who values autonomy and simplicity. Conversely, an FZC is the ideal solution for partnerships and joint ventures, allowing multiple individuals or companies to collaborate under a limited liability structure. 

By carefully evaluating your business’s ownership, capital needs, and long-term goals, you can select the right structure and lay a strong foundation for a successful venture in the UAE.