Free zones represent special zones in the country where the legislation is distinct in contrast to the rest of a nation. Free zones of UAE provide incentives such as tax havens, 100 % foreign disposal, and cash flow of profits. Some of the prominent business structures within these zones include Free Zone Establishment ( FZE ) and Free Zone Company (FZCO). For investors and entrepreneurs who are intending to invest in the free zones in UAE, this distinction between these two different entities is very significant. This has been due to a range of differences and similarities that will be explained in this overview together with the impact on businesses.
Free Zone Establishment (FZE)
Definition and Structure:
A Free Zone Establishment or FZE is a form of business formation in the free zones of UAE which is similar to a sole proprietorship in the sense that it is owned by one individual. It is a legal entity that enjoys autonomy in matters of contracting for services, acquiring proporTions, and being held legally liable as a separate legal entity.
Key Characteristics:
FZE means that the limited liability company is owned by one individual or by another business organization. This makes it suitable for those who are carrying out the setting up a business in Dubai alone or little business that wishes to have full control of the business.
2. Minimum Capital Requirement:
This is basically dependent on the requisite free zone company setup but starting from AED 50 000 to AED 150 000 is typical for an FZE.
3. Limited Liability:
The amount of personal risk involved when participating in FZE is limited to the amount of capital each shareholder invests in the business venture, thereby shielding personal assets in the case of business risks and losses.
4. Management Structure:
The management of the company is usually simple, and the sole shareholder may personally manage the company or employ others to do it.
Advantages:
1. Full Ownership:
Dubai free zone benefits involve the full free ownership without the requirement of a local partner or nominal control as it is with the joint-venture structures.
2. Simplified Decision-Making:
Fewer bureaucratic measures are involved since it will only have one shareholder once implemented, thus will form necessary decisions easily.
3. Asset Protection:
Later, limited liability prevents the owner’s personal property from being seized to pay for the company’s debts.
Free Zone Company (FZC)
Free Zone Company structure in Dubai (FZC) or Free Zone Limited Liability Company (FZ-LLC) is a legal entity which may include two or more partners with responsibilities for multiple business activities. It is also an FZE and protected and enjoys the same privileges as enjoyed by the other free zones business entities.
Choosing Between FZE and FZC:
1. Solo Entrepreneurs:
An FZE business setup is the most suitable for one person businesses or a single legal entity in the dislike who want full command of their enterprise.
2. Partnerships and Joint Ventures:
The formation of an FZC is preferable for partnerships, joint ventures, or any form of business entity that intends to share the capital and its attendant responsibility of ownership.
3. Growth and Expansion:
Companies interested in future expansion and likely to need more than one investor may find an FZC as a more suitable choice for MEs due to the multiple shareholders acceptable.
Strategic Considerations:
1. Ease of Setup:
In terms of the ease of setup within free zones, there is a difference that is, however, insignificant for both entities; the choice, thus, will depend on the business-form plans in the future.
2. Capital Requirements:
Free zone regulatory compliance, capital requirements vary slightly between free zones, but certain conditions specific to the zones involved might affect this decision.
3. Sector-Specific Regulations:
Some free zones are dedicated to certain types of activities, so the decision regarding the choice of Free Zone Establishment FZE or FZC can involve specific restrictions in free zone regulations or opportunities and advantages in a certain sector.
Summing up, possessing the knowledge of main differences between FZE and FZC will be helpful for any company intending to establish the subsidiary in one of the UAE free zones. Both provide benefits accompanied with the opportunity suited to various business types and objectives enabling businessmen and companies to effectively use the benefits of a free zone environment with the expert consultancy of PRO services In Dubai while following their business plan and percentage of ownership or stake.
