What Is The Difference Between FZE and FZC In Dubai

Free Zone Establishment vs Free Zone Company

Dubai has become an ideal landscape for businesses aiming to expand in the Middle East, owing to its supportive policies, prime location, and vibrant market. Entrepreneurs in the UAE establish their business in the Free Zones of Dubai to target an international audience. Within Dubai’s Free Zones, companies can establish themselves as either Free Zone Establishments (FZE) or Free Zone Companies (FZC), both of which provide attractive advantages.

While both the jurisdictions, FZE and FZC, offer significant benefits, they differ in key aspects. Understanding these differences is important for entrepreneurs and investors who want to take advantage of Dubai’s Free Zones.

This article explains the unique characteristics and key differences between FZEs and FZCs, helping you choose the best business structure for your company. Business setup experts at Now Consultant help you incorporate your company in one of the best jurisdictions according to your requirements while adhering to regulatory authorities.

What Is a Free Zone Establishment (FZE)?

Characteristics of an FZE:

A Free Zone Establishment is a business model within the UAE’s Free Zones designed for a single shareholder, whether an individual or a corporate body. This structure is especially attractive to entrepreneurs who desire sole ownership of their business.

Ownership and Shareholder Structure:

The single-shareholder system of an FZE company simplifies ownership, granting the sole owner complete control over the company’s operations, which streamlines management. However, any transfer of shares requires approval from the Free Zone authorities to ensure adherence to local regulations.

Governance and Legal Compliance:

Free Zone Enterprises (FZEs) must adhere to the specific governance guidelines outlined in their respective Free Zone’s Implementing Rules and Regulations. The rules state that a company must have at least two directors and a company secretary. One person is allowed to be both a director and the company secretary.

FZEs need a Free Zone Licence to operate legally in the Free Zone. They must also submit audited financial statements to the Free Zone Authority each year within three months after the fiscal year ends. This rule highlights the importance of financial transparency in the Free Zones.

What Is Free Zone Company (FZC)?

An FZC is a type of business entity that can have up to five shareholders, which makes it different from an FZE. The name of an FZC reflects the number of its shareholders.

Features of an FZC:

Shareholders of an FZC have the flexibility to allocate shares according to their preferences. They can either manage the Free Zone company themselves or appoint a manager. Additionally, some Free Zones provide different packages for FZCs, with fees that vary depending on the number of shareholders.

Shareholder Requirements and Options:

Forming an FZC requires all shareholders to be involved in the documentation and signing procedures. Unlike mainland LLCs, there is no requirement for a minimum share percentage for any shareholder, enabling a share distribution that aligns with the company’s strategic goals.

Company Management and Operation:

Shareholders of an FZC can either take managerial responsibilities themselves or designate a manager based on their expertise and the company’s operational needs. The establishment expenses for an FZC can vary among Free Zones, with some imposing higher fees for companies with multiple shareholders.

Key Differences Between FZC and FZE:

The key differences between FZE (Free Zone Establishment) and FZC (Free Zone Company) are given below:

AspectFZEFZC
Number of ShareholdersDesigned for a sole shareholderCan have between two and five shareholders
Capital RequirementsInitial capital investment varies from $55,000 to $328,000Initial capital investment varies from $55,000 to $328,000
Liability and Legal StatusLimited liability protectionShare transfers require approval from Free Zone authorities
Business Operations and ScopeGoverned by Free Zone regulationsRequires at least two directors and a company secretary
Share TransfersApproval is required from Free Zone authoritiesApproval is required from Free Zone authorities
Financial StatementsAudited financial statements are requiredAudited financial statements are required
Director and SecretaryAt least two directors and a company secretaryAt least two directors and a company secretary, one person can fulfill both roles

How To Choose The Right Business Entity For Your Business?

The following are the factors that help you decide what is the right business entity for your business:

Evaluating Business Needs and Objectives:

Choosing the right corporate structure in the UAE requires thoroughly evaluating your business goals. The decision to operate in a Free Zone or on the mainland depends on several factors, such as the preference for expatriates to obtain investor visas, your target audience, and ownership rights.

However, the decision between incorporating as an FZE or an FZC depends on your business venture’s size and individual goals.

Understanding Tax and Legal Consequences:

A proper understanding of the tax advantages and legal obligations linked to your chosen business structure is mandatory to set your business in a dynamic legislation environment. In Free Zones, corporate shareholders have the freedom to distribute ownership shares according to their preferences, unlike mainland entities, which adhere to stricter regulatory frameworks for such allocations.

This autonomy is significantly beneficial for strategic planning and tax management. However, the key decisions, like changing the business license or dissolving the company, require unanimous agreement from all shareholders.

Procedures for Setup and Registration:

Setting up and registering a business in a Free Zone varies based on the type of entity and the specific Free Zone’s regulations. Certain Free Zones specify the allowed number of shareholders for various company formation packages, which can impact the overall cost.

The initial financial contributions from shareholders do not need to be equal, but it is important to agree on the investment amounts and management structure. Whether hiring a professional manager or managing the company yourself, active involvement in governance is necessary.

How Can We Help Your Business?

Choosing between an FZC or FZE is significant for your business success and growth in Dubai’s vibrant economy. However, establishing a business in either of the jurisdictions presents significant challenges; therefore, you need to get the guidance of business setup experts to decide on an FZE or FZC.

Now Consultant, the leading business setup firm, can assist you in incorporating your company into one of the above jurisdictions according to your company requirements. 

Our experts can help you make an informed decision on the optimal business structure that aligns perfectly with your goals. Our experts are dedicated to simplifying your journey of establishing a business in the UAE. We offer complete support, helping you understand regulatory requirements, assist with your application process, and ensure you fully comply with all legal obligations.

FAQs:

What Is The Difference Between FZC and LLC?

LLCs can do business inside and outside the UAE. An FZE, on the other hand, allows 100% foreign ownership, operates only within free zones, and can send profits and capital back to the owner’s home country.

What Is The Meaning of FZCO In Dubai?

 An FZCO (Free Zone Company) in Dubai is a business with multiple shareholders. These shareholders can be individuals (people) or non-individuals (companies).

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