Dubai’s reputation as a business hub in the United Arab Emirates (UAE) is well-established, offering a variety of corporate structures to suit your entrepreneurial and investment needs. The emirate’s business-friendly environment, strong economy, and diverse culture have made it a hot spot for international business ventures.
When setting up a business in Dubai’s Free Zones, you’ll come across two common business structures:
- Free Zone Establishment (FZE) – A single-shareholder company.
- Free Zone Company (FZCO) – A multi-shareholder company (between 2 and 50 shareholders).
Both offer 100% foreign ownership, tax benefits, and business-friendly regulations, but they serve different business needs. In this article, we will explore their key differences, ownership structures, and legal requirements, to help you choose the right entity for your business.
What is a Free Zone Company (FZCO)?
Key Features of an FZCO
- Multiple Shareholders: Can have 2 to 50 shareholders (individuals or companies).
- Flexible Ownership Structure: Shareholders can determine their own share distribution.
- Limited Liability: Personal assets are protected from business risks.
Company Management & Operations
- Shareholders can either manage the company themselves or appoint a manager.
- Some Free Zones offer different setup packages based on the number of shareholders.
- The cost of establishing an FZCO varies depending on the Free Zone and the number of shareholders.
Best for: Partnerships, joint ventures, or businesses with multiple owners seeking strategic expansion.
What is a Free Zone Establishment (FZE)?
Key Features of an FZE
- Single Shareholder: Can be an individual or a corporate entity.
- Full Control: The sole owner has complete authority over business operations.
- Limited Liability: Personal assets are protected from business liabilities.
- Regulatory Compliance: Governed by the Free Zone’s regulations.
Governance & Legal Compliance
- Some Free Zones state that you must appoint at least two directors and a company secretary (one person can hold both roles).
- Requires a Free Zone Licence to operate legally.
- Must submit audited financial statements annually to the Free Zone Authority.
Best for: Solo entrepreneurs, independent investors, and small businesses looking for full control over their operations.
Additional Considerations for FZEs & FZCOs
1. Conversion Between FZE & FZCO
It is possible to convert an FZE into an FZCO and vice versa, provided that the company complies with the Free Zone authority’s rules and regulations.
2. Flexible Financial Year-End
Unlike mainland businesses, Free Zone companies can select their own financial year-end, provided they obtain approval from the Free Zone Authority. This flexibility allows businesses to align their reporting cycle with international parent companies or optimise tax and accounting strategies.
3. Public Listing & Non-Profit Use
- Free Zone entities cannot be publicly listed on stock exchanges, meaning they cannot issue shares to the public through an Initial Public Offering (IPO). If a business aims to become a publicly traded company, it would need to restructure under a mainland entity that complies with UAE Securities and Commodities Authority (SCA) regulations.
- Free Zone entities can be used for non-profit or charitable activities, but this is subject to approval from both the Free Zone Authority and the UAE government. Organisations looking to operate as a non-profit must obtain special permits from the relevant Free Zone Authority, secure approval from UAE government entities, such as the Community Development Authority (CDA) in Dubai or other regulatory bodies, and operate within the legal framework for non-profits, ensuring they do not engage in commercial activities that generate private profit.
4. International Transactions & Mainland Trade
- Free Zones allow businesses to engage in international trade and restructuring within their Free Zone or abroad. However, direct trade with the UAE mainland is generally restricted unless a local distributor or agent licensed by the Department of Economic Development (DED) is appointed.
- Exceptions: Some designated Free Zones permit limited mainland trade under specific conditions. For example, the Jebel Ali Free Zone (JAFZA) allows companies to trade with the mainland through JAFZA-registered local distributors, while certain service-based businesses may operate in the mainland without a distributor.
5. Lease Agreement & Approvals
- A lease agreement with the Free Zone authority is required for company registration.
- Beyond obtaining a lease agreement, some regulated industries require additional approvals from UAE authorities before operations can begin. These approvals depend on the nature of the business:
Healthcare & Medical Services:
Approval is required from the Ministry of Health and Prevention (MOHAP) or Dubai Health Authority (DHA).
Financial Services & Banking:
Approval from the UAE Central Bank or Securities and Commodities Authority (SCA).
Education & Training Institutes:
Clearance is needed from the Knowledge and Human Development Authority (KHDA).
Media & Publishing:
Regulatory approval from the National Media Council (NMC) for content-related businesses.
E-commerce & Digital Trade:
Certain Free Zones, such as Dubai CommerCity, require sector-specific approvals for online businesses.
6. VAT & Tax Identification
- The UAE introduced Value Added Tax (VAT) at 5% in 2018.
- Businesses must register for VAT if taxable revenue exceeds AED 375,000 per annum.
7. Banking & Financial Services
- Free Zone companies may face challenges opening corporate bank accounts, as banks often consider them higher risk compared to mainland companies.
- Partnering with business setup specialists like Virtuzone can streamline the process and ensure compliance.
8. Corporate Directors in Free Zones
Some Free Zones allow businesses to appoint corporate directors instead of individual directors, offering greater flexibility for parent companies, holding structures, and international businesses. However, this is subject to special approval from the Free Zone Authority, and the requirements vary depending on the specific Free Zone.
Corporate directors can be beneficial for multinational companies looking to centralise decision-making and simplify governance structures. However, Free Zone authorities may impose additional compliance measures, including document verification, financial disclosures, and operational oversight.
For businesses considering corporate directors, Virtuzone can provide guidance on navigating the approval process and ensuring full compliance with Free Zone regulations.
9. Capital Requirements & Share Structure
Free Zone companies in the UAE must comply with capital requirements set by their respective Free Zone Authorities. While some Free Zones have removed minimum capital requirements, others still mandate a specific minimum capital contribution, which varies based on business activity and Free Zone regulations.
Types of Capital Contributions
Unlike mainland companies, Free Zone businesses can fulfil capital requirements through two methods:
- Cash Contributions – Capital is deposited into a corporate bank account as required by the Free Zone Authority.
- In-Kind Contributions – Instead of cash, businesses can contribute tangible or intangible assets such as equipment, intellectual property, or real estate. These contributions must be independently valued and approved by the Free Zone Authority before they can be counted toward capital requirements.
Updated Capital Requirements (2025)
- No Minimum Capital Requirement – Some Free Zones, such as Dubai Multi Commodities Centre (DMCC) and Dubai Airport Free Zone (DAFZ), allow businesses to determine their own capital requirements based on operational needs.
- Fixed Capital Requirements – Certain Free Zones, such as Jebel Ali Free Zone (JAFZA) and Abu Dhabi Global Market (ADGM), require a minimum share capital ranging from AED 50,000 to AED 300,000, depending on the business type.
- Sector-Specific Capital Requirements – Businesses in highly regulated industries, including finance, healthcare, and insurance, often face higher mandatory capital contributions as part of their licensing conditions.
Share Structure Considerations
- FZE (Free Zone Establishment) – A single-shareholder entity, meaning 100% of its shares are issued to one individual or corporate entity.
- FZCO (Free Zone Company) – Allows between 2 to 50 shareholders, offering flexible share distribution to structure ownership based on investment contributions, partnership agreements, or strategic business needs.
10. Ownership Interests & Share Transfers
Transferring shares in an FZE or FZCO must comply with Free Zone regulations to ensure legal transparency and shareholder protection. Unlike mainland businesses, Free Zone companies offer greater flexibility in shareholding structures, but all transfers must be formally registered with the Free Zone Authority.
Key Documentation for Share Transfers
To execute a share transfer, the following documents are typically required:
- Board Resolution – A formal resolution passed by the existing shareholders approving the share transfer.
- Share Purchase & Transfer Agreement (SPTA) – A legal contract outlining the terms of the sale, including the agreed price, rights, and obligations of both parties.
- Amendment to Memorandum & Articles of Association – The company’s legal documents must be updated to reflect the new ownership structure.
- No Objection Certificate (NOC) – Some Free Zones require an NOC from the company or Free Zone Authority before proceeding with the transfer.
- Financial Due Diligence Reports – Some Free Zones may request audited financial statements before approving a share transfer.
Restrictions on Share Transfers
FZEs (Single Shareholder Companies) – A share transfer results in a full ownership transfer or the conversion of the company into an FZCO to accommodate multiple shareholders.
FZCOs (Multi-Shareholder Companies) – Shareholders can sell their stakes partially or fully, subject to Free Zone Authority approval.
Approval & Registration Process
- The Free Zone Authority must review and approve all share transfers.
- Some Free Zones impose transfer fees based on the percentage of shares being sold.
- Many Free Zones allow remote share transfers, making it easier for international investors to manage business ownership.
Other Types of Business Structures in Dubai
While FZEs and FZCOs are popular within Free Zones, Dubai offers several other business entity options for entrepreneurs looking to operate on the mainland or in specific sectors.
1. Limited Liability Company (LLC)
A Limited Liability Company (LLC) is the most common business structure in Dubai mainland.
- Requires a UAE national sponsor who holds at least 51% ownership.
- Note: A local sponsor is a UAE national who holds 51% ownership in a mainland LLC, whereas a local service agent has no ownership but assists with government dealings for sole proprietorships and branch offices.
- Foreign investors can own up to 49% of the business.
- An LLC in Dubai must appoint at least one manager and can have up to five managers. These managers can be partners or external individuals and are granted full administrative and managerial authority unless otherwise specified in the company’s Memorandum of Association.
Best for: Businesses that want to operate across the UAE mainland.
2. Branch Office
Foreign companies can establish a branch office in Dubai to operate under their parent company.
- 100% foreign ownership allowed.
- Requires a local service agent to manage legal and administrative matters.
Best for: International businesses looking to expand into the UAE.
3. Sole Proprietorship
A sole proprietorship is a straightforward business structure where an individual owns and operates the company independently.
- 100% foreign ownership allowed for professional services.
- The owner is personally liable for all debts and obligations.
- If a foreign national establishes a sole proprietorship for commercial or industrial services, they must appoint a Local Service Agent to handle administrative and legal matters.
- Note: Unlike a local sponsor, a local service agent does not hold any ownership in the business but facilitates government-related procedures for sole proprietorships and branch offices.
Best for: Freelancers, consultants, and service-based professionals.
4. Joint Venture (JV)
A joint venture is a collaboration between a foreign investor and a UAE national.
- No separate legal entity; profits and losses are shared as per agreement.
- The local partner must hold at least 51% equity and is on the hook for all liabilities unless the agreement is made public.
Best for: Project-based businesses and investors looking for UAE market entry.
5. Public & Private Shareholding Companies
Public and Private Shareholding Companies are for businesses that plan to raise capital through shares.
- Public shareholding companies can be listed on stock exchanges.
- Private shareholding companies can have a minimum of three shareholders.
Best for: Large-scale enterprises and corporate investments.
6. Offshore Companies
Offshore Companies are a business structure for companies that do not operate within the UAE but use the UAE as a base.
- 100% foreign ownership with no corporate tax.
- Cannot conduct business within the UAE mainland.
Best for: Holding companies, international trading, and asset protection.
7. Civil Company
A civil company is a professional partnership where two or more individuals provide professional services, such as legal, medical, or consultancy services.
- 100% foreign ownership is allowed for professional activities.
- Must appoint a Local Service Agent (LSA) for administrative matters.
- Partners share profits and liabilities based on their agreement.
Best for: Lawyers, engineers, doctors, and professional service providers.
8. Limited Partnership (LP)
A Limited Partnership consists of two types of partners:
- General Partners (must be UAE nationals) manage and operate the business.
- Limited Partners (can be foreign nationals) contribute capital but do not participate in management.
Best for: Foreign investors looking to invest in Dubai while relying on a local partner for operational management.
9. Free Zone LLC (FZ-LLC)
A Free Zone Limited Liability Company (FZ-LLC) is similar to a mainland LLC but operates within a Free Zone.
- 100% foreign ownership is allowed.
- Must operate only within the Free Zone or internationally (not on the mainland).
- Offers tax benefits, including 0% corporate tax in qualifying Free Zones.
Best for: Small-to-medium enterprises (SMEs) looking for tax-free operations and full control over their business.
10. Representative Office
A Representative Office allows a foreign company to promote its business and market research in Dubai but cannot conduct commercial activities.
- 100% foreign ownership is permitted.
- A Local Service Agent (LSA) is required.
- Cannot generate revenue but can act as a liaison between the parent company and UAE clients.
Best for: Foreign companies testing the UAE market before launching full operations.
11. Single-Person LLC (Sole Establishment LLC)
A Single-Person LLC is a hybrid between a sole proprietorship and an LLC.
- Allows one individual or entity to own 100% of the business while limiting personal liability.
- Cannot engage in professional services but can operate in commercial and industrial sectors.
Best for: Entrepreneurs who want full ownership with limited liability protection.
Selecting the right business entity in Dubai hinges on several factors, including ownership structure, liability, regulatory requirements, and operational scope. Free Zones offer tax advantages and full foreign ownership, while mainland businesses provide direct access to the UAE market.
Navigating these options can be complex, but Virtuzone simplifies the process—helping you select, register, and launch your business in the UAE with full compliance. Whether you’re setting up a Free Zone company or a mainland LLC, our team ensures a seamless business formation experience.
HOW MUCH DOES STARTING A BUSINESS IN THE UAE COST?
Benefits of Free Zone Companies in Dubai
1. 100% Foreign Ownership
Unlike mainland businesses, Free Zone entities allow full ownership without requiring a local Emirati sponsor.
2. 0% Corporate Tax (For Qualifying Businesses)
- Free Zone companies can enjoy a 0% corporate tax rate if they meet the eligibility criteria.
- They also benefit from customs duty exemptions on imports and exports.
3. No Office Space Required
- Virtual offices and co-working spaces are commonly used in Free Zones, while mainland companies require physical office space.
4. Easy Business Setup & Remote Registration
- Many Free Zones allow for fully remote company registration, so entrepreneurs don’t need to visit the UAE to start their business. Most Free Zones allow electronic submission of required documents. Some Free Zones offer expedited processing, with company formation in as little as one day.
However, while company registration can be done remotely, certain Free Zone procedures—such as Emirates ID processing, visa stamping, and banking requirements—may still require a physical visit.
5. Confidentiality & Privacy
- Unlike mainland businesses, Free Zone company ownership details are not publicly accessible.
- This provides an additional layer of business privacy and security.
Choosing Between an FZE and an FZCO
Selecting the right Free Zone business structure—Free Zone Establishment (FZE) or Free Zone Company (FZCO)—depends on several key factors, including ownership, expansion plans, and business control. Understanding these distinctions will help you make an informed decision that aligns with your long-term business objectives.
Assessing Business Structure and Ownership
- An FZE is best suited for solo entrepreneurs or businesses that prefer complete ownership and control over operations. It allows for a single shareholder, who can be either an individual or a corporate entity.
- An FZCO accommodates multiple shareholders (between 2 and 50), making it ideal for partnerships and investors seeking a collaborative business model.
Expansion and Investment Flexibility
- If you anticipate scaling your business or bringing in partners or investors in the future, an FZCO provides greater flexibility in shareholding and capital allocation.
- FZEs, on the other hand, may face limitations when it comes to restructuring or selling shares, as they are designed for single ownership.
Liability, Control, and Decision-Making
- An FZE offers full autonomy, with the owner having exclusive decision-making power and control over business operations. This can be beneficial for entrepreneurs who prefer direct oversight.
- An FZCO allows shared decision-making, distribution control and responsibilities among partners. This setup can provide diverse expertise and risk-sharing, though it requires collaborative governance.
Understanding Regulatory and Tax Considerations
- Both structures benefit from 0% corporate tax in Free Zones (subject to compliance with Free Zone tax exemptions).
- An FZCO may require more compliance documentation due to multiple shareholders, whereas FZEs have a simpler regulatory process.
Need Help Choosing the Right Structure?
If you’re unsure whether an FZE or FZCO is the best fit for your business, Virtuzone’s Free Zone experts can guide you through the setup process, ensuring you select the right structure that aligns with your business goals, growth plans, and regulatory requirements. Our team provides end-to-end support, from choosing the ideal Free Zone to handling company registration, licensing, and compliance.
With our expertise, you can avoid unnecessary delays, reduce administrative burdens, and maximise the benefits of operating in the UAE. Get in touch today for a free consultation and take the first step towards a seamless business setup.
FAQs
What is the Difference Between an FZE and an FZCO?
The key difference between a Free Zone Establishment (FZE) and a Free Zone Company (FZCO) lies in their shareholder structure. An FZE is designed for a single shareholder, which can be either an individual or a corporate entity, offering full ownership and control. In contrast, an FZCO allows multiple shareholders (between 2 and 50), making it suitable for partnerships or businesses with multiple investors. Both structures provide limited liability, 100% foreign ownership, and Free Zone benefits, but an FZCO offers more flexibility in ownership distribution and investment scaling.
What is the Difference Between an LLC and an FZE?
An LLC (Limited Liability Company) and an FZE (Free Zone Establishment) differ mainly in terms of ownership and operational scope. An LLC in the UAE typically allows only up to 49% of the company shares to be owned by foreign nationals, and a local sponsor or partner who is a UAE national must hold at least 51% of the company shares. LLCs are permitted to conduct business both within and outside the UAE. In contrast, an FZE allows 100% foreign ownership, operates within the free zones, and can repatriate profits and capital. While an LLC offers limited liability protection, it has more restrictions on foreign ownership and operational scope compared to an FZE.
What is the Difference Between an FZE, LLC and an FZCO?
The key differences between an FZE (Free Zone Establishment), FZCO (Free Zone Company), and an LLC (Limited Liability Company) lie in ownership, location, and business scope:
- Free Zone Establishment (FZE) – A single-shareholder company registered in a Free Zone, allowing 100% foreign ownership and benefiting from tax exemptions. However, it cannot conduct business on the mainland of the UAE without appointing a local distributor or agent.
- Free Zone Company (FZCO) – A multi-shareholder company (2 to 50 shareholders) with the same Free Zone benefits as an FZE. It offers flexible shareholding but, like an FZE, requires a local agent to operate on the mainland.
- Limited Liability Company (LLC) – A mainland company that allows up to 49% foreign ownership, with a UAE national sponsor holding at least 51% (unless it operates in certain permitted sectors where 100% foreign ownership is allowed). An LLC can trade freely within the UAE mainland and internationally.
