FZCO vs. LLC in the UAE: Legal and Structural Comparison for Business Setup

The United Arab Emirates (UAE) offers diverse options for entrepreneurs and foreign investors seeking to establish commercial operations. Two of the most common corporate vehicles are the Limited Liability Company (LLC) and the Free Zone Company (FZCO). This article provides a comparative legal analysis of both structures, focusing on their incorporation frameworks, ownership regulations, permissible activities, taxation, and strategic suitability.

1. Legal Framework and Jurisdiction

An LLC (Limited Liability Company) is a mainland entity incorporated under the supervision of the respective Emirate's Department of Economic Development (DED). It is governed by Federal Law No. 32 of 2021 concerning Commercial Companies and relevant local regulations.

In contrast, an FZCO (Free Zone Company) is incorporated under the authority of a designated Free Zone jurisdiction such as Jebel Ali Free Zone (JAFZA), Dubai Airport Free Zone (DAFZA), or others. Legally, it is treated as an “offshore” or “non-resident” entity within the UAE in terms of mainland commercial engagement.

2. Ownership Structure and Business Activities

LLC:

• Can be wholly foreign owned in most business activities under recent legislative reforms. However, certain strategic sectors still require Emirati shareholding.

• Permitted to conduct business directly within the UAE mainland without restrictions.

• Subject to compliance with both federal and local licensing requirements.

FZCO:

• Allows 100% foreign ownership across all Free Zones, with no requirement for a UAE national shareholder.

• Prohibited from conducting direct commercial activity within the UAE mainland unless through a registered local distributor or service agent.

• Typically used for international trade, online business models, and regional operations.

3. Taxation and Cost Considerations

LLC:

• Subject to UAE Corporate Tax at a rate of 9% on profits exceeding AED 375,000, effective from June 2023.

• Generally, it involves higher registration, licensing, and compliance costs due to broader market access and regulatory oversight.

FZCO:

• Many Free Zones offer tax incentives, including corporate tax exemptions for qualifying activities.

• Lower setup costs and simplified regulatory requirements make it attractive for startups and SMEs.

• However, limitations on local market access may necessitate additional agreements or restructuring.

4. Strategic Selection: Which Entity Is Right for You?

Opt for an LLC if:

• Your business model requires direct access to the UAE mainland market (e.g., retail, construction, or professional services).

• You need to engage with government entities or participate in tenders.

• Local presence and broader physical footprint are critical to your operations.

Opt for an FZCO if:

• You focus on international trading, e-commerce, consultancy, or logistics.

• You prefer complete foreign ownership and seek ease of establishment.

• Your business does not require a physical presence or licensing in the mainland UAE.

Conclusion

Choosing between an LLC and FZCO depends on the strategic intent, regulatory tolerance, and operational geography of the business. While an LLC offers unimpeded access to the local market, an FZCO presents compelling benefits in ownership flexibility and tax efficiency. Investors are strongly advised to seek tailored legal consultation before deciding, ensuring compliance with the evolving regulatory landscape of the UAE.