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Your shareholder setup decides your structure before you decide anything else. Get this right early and the rest of your free zone setup moves faster.
What are the disadvantages of free zone companies in Dubai?
The main trade-off is local market access, not the structure. Every free zone company needs an extra step to sell straight to UAE mainland customers. That step is a distributor or its own branch licence. Your structure choice changes liability and ownership. It doesn’t change this mainland access rule at all.
Planning to set up a free zone company in the UAE? Structure is one of your first two decisions. The other is the zone itself.
FZE vs FZCO vs Branch
| Structure | Ownership | Liability | Activity scope |
|---|---|---|---|
| FZE (Free Zone Establishment) | Single shareholder, in zones that still offer it. DSO and the other DIEZ zones stopped issuing FZEs in 2023 | Sits with the company, not the individual; personal assets stay separate | Whatever the licence covers |
| FZCO (Free Zone Company) | In DIEZ zones (DSO, IFZA Dubai), one or more shareholders. Some other zones still ask for two or more | Sits with the company, shared ownership recorded in the memorandum of association | Whatever the licence covers |
| Branch | Extension of an existing company, foreign or local | No separate legal identity; the parent company carries the branch’s liabilities directly | Same activities as the parent only, no new activities without the parent already holding that licence |
Each free zone uses its own names for these structures. Share capital rules also vary by zone and activity. Some zones ask for a fixed minimum. Others leave it flexible. The old rule was FZE for one owner and FZCO for two or more. That rule no longer holds everywhere. Dubai Silicon Oasis (DSO) and the other Dubai Integrated Economic Zones dropped the FZE in 2023. There, an FZCO takes one or more shareholders. IFZA Dubai companies register through DSO, so they follow the same rule. DMCC has one company type for one or more shareholders. Since 2 January 2025, new DMCC companies use the “FZCO” suffix.
Which Structure Fits Your Shareholders
One founder, no partners: an FZE is the simplest fit in zones that still offer it. In DSO or IFZA Dubai, a one-shareholder FZCO does the same job. Two or more founders sharing ownership: an FZCO handles that directly. It also makes it easier to add a new shareholder later. An existing company expanding into the UAE without a new legal entity: pick a branch. It stays under the parent company. It also skips a separate incorporation.
Shareholder count isn’t the only factor. Liability protection matters if the business carries real commercial risk. Do you expect outside investors? Then an FZCO is easier to add shareholders to than a solo FZE. Think about future partners too, not just your owners today. Once you’ve settled on a structure, our guide on getting a free zone licence in UAE covers the full process.
Disadvantages to Weigh
Every structure carries the same core limits inside a free zone. None trade straight into the UAE mainland without an extra step. That step is the older distributor route or the newer DET branch-licence route (more below). Some licence types need a physical facility, not just a desk. Changing structure later also takes time. Say you move from FZE to FZCO when a co-founder joins. You need a new memorandum of association and updated shareholder records.
None of these are dealbreakers. They’re just planning points. Sort your structure and shareholder agreement before you file. Then you avoid a mid-process change. That change costs time and a second round of fees.
Can a Free Zone Company Do Business in Dubai?
Yes, with an extra step. A free zone company trades freely inside its zone and abroad. To sell into the Dubai mainland, it needs a distributor or a mainland company. Since March 2025, it can also get its own DET branch licence. A temporary permit of up to six months works too.
Direct mainland sales always needed something extra: a local distributor, an agent, or a separate mainland company. Executive Council Resolution No. (11) of 2025 added a new route. Free zone firms can now apply straight to Dubai’s Department of Economy and Tourism (DET). They get their own branch licence or a temporary permit. No third-party distributor is needed. The route doesn’t cover DIFC financial firms. It works inside Dubai emirate only. The branch has no separate legal identity from your free zone company.
Does mainland access matter from day one? Then compare the DET route’s fees with Dubai mainland company formation. A full mainland company gives wider local access than a branch licence or permit.
No free zone structure needs a local sponsor in the UAE. Foreign owners can hold 100% of an FZE, FZCO, or branch. Rules on capital, office space, and activities differ by zone. Check a free zone authority like DMCC or the UAE government free zones portal for your own case.
Converting Between Structures Later
Moving from FZE to FZCO, or the reverse, isn’t a same-day change. You amend the company’s founding documents. You update the shareholder register with the zone authority. Most zones also reissue the trade licence for the new structure. Some zones ask for fresh know-your-customer documents on any new shareholder. This comes on top of the standard paperwork.
Budget both time and a second round of zone fees for this. Most zones finish a conversion within a couple of weeks once the paperwork is complete. Still, don’t leave it until the week you need the new shareholder. Do you expect a co-founder or investor in year one? Then start as an FZCO, even with one shareholder. Many zones, including DSO and DMCC, let a one-shareholder company add more owners later. No structure change is needed.
Conclusion
Your structure follows your shareholder count and your zone. One owner points to an FZE, or a one-shareholder FZCO in DSO, IFZA Dubai and DMCC. Multiple owners point to an FZCO. An existing company expanding in points to a branch. Pick the structure that matches your ownership, then move to licensing.
Not sure which structure fits your setup? Our team advises on UAE free zone company structure and licensing together.
This guide is general information. Structure options and rules differ by free zone. Check with the free zone authority or a setup consultant for your own case.
Frequently Asked Questions
What is the difference between an FZE and an FZCO?
An FZE has a single shareholder. An FZCO has two or more shareholders in some zones. In DSO, IFZA Dubai and the other DIEZ zones, the FZE was dropped in 2023 and an FZCO can have one or more shareholders. Both have the same basic operating rules.
Can a free zone company do business in Dubai’s local market?
Yes, with an extra step. It can appoint a local distributor or agent, open a separate mainland company, or since March 2025 apply to Dubai’s DET for its own branch licence or a temporary permit under Executive Council Resolution No. (11) of 2025.
Can I open a branch of my existing company in a UAE free zone?
Yes. A branch carries out the same activities as its parent company and has no separate legal identity from it.
