UAE Free Zone Tax Guide
Complete guide to VAT and Corporate Tax for UAE Free Zone companies. Understand Designated Zones, Qualifying Free Zone Persons, and how to maintain tax benefits while staying compliant.
VAT for UAE Free Zone Companies
Understanding VAT treatment in Designated and Non-Designated Zones
Designated Zones
Special VAT treatment for goods movement
- Goods within zone: Outside VAT scope
- Zone-to-zone goods: Outside VAT scope
- Goods to mainland: Standard 5% VAT
- Services: Always standard VAT rules
Non-Designated Zones
Standard VAT rules apply
- All supplies: Standard 5% VAT
- Exports: Zero-rated (0%)
- Same registration thresholds
- Full VAT return filing required
UAE Designated Zones
Free Zones with special VAT treatment for goods
Dubai
- Jebel Ali Free Zone (JAFZA)
- Dubai Airport Free Zone (DAFZ)
- Dubai Multi Commodities Centre (DMCC)
- Dubai Silicon Oasis
- Dubai South
Abu Dhabi
- Khalifa Industrial Zone (KIZAD)
- Abu Dhabi Airport Free Zone
- twofour54
- Masdar City Free Zone
- Abu Dhabi Global Market (ADGM)
Sharjah
- Sharjah Airport Free Zone (SAIF)
- Hamriyah Free Zone
- Sharjah Media City (Shams)
Ras Al Khaimah
- RAK Free Trade Zone
- RAK Maritime City
- RAK Investment Authority
Ajman
- Ajman Free Zone
- Ajman Media City
Fujairah & UAQ
- Fujairah Free Zone
- Fujairah Creative City
- Umm Al Quwain Free Zone
Note: Designated Zone status applies to goods only. Services are always subject to standard VAT rules.
Corporate Tax for Free Zone Companies
Qualifying Free Zone Persons (QFZP) can benefit from a 0% Corporate Tax rate on qualifying income while maintaining their Free Zone advantages.
What is a Qualifying Free Zone Person?
A Free Zone entity that meets substance requirements, maintains adequate substance in the UAE, derives qualifying income, and has not elected to be subject to standard CT rates.
0% Rate on Qualifying Income
Income from transactions with other Free Zone entities, foreign-sourced income, and certain qualifying activities are taxed at 0%.
9% Rate on Non-Qualifying Income
Income from mainland UAE transactions exceeding the de minimis threshold is taxed at the standard 9% rate.
QFZP Requirements
Adequate assets, employees, and operating expenditure in the Free Zone
Income from qualifying activities as specified by the Ministry of Finance
Non-qualifying revenue must not exceed 5% of total revenue (or AED 5 million)
Audited financial statements are mandatory for QFZPs
Must not have elected to be subject to standard CT rates
Qualifying Free Zone Activities
Activities eligible for 0% Corporate Tax rate
Manufacturing
Manufacturing and processing of goods or materials
Trading
Trading of qualifying commodities
Holding
Holding of shares and other securities
Treasury
Treasury and financing (intra-group)
Headquarters
Headquarters and holding services
Logistics
Distribution and logistics services
IP Management
Intellectual property licensing
Ship Management
Ship and aircraft management
Free Zone Tax FAQs
Common questions about Free Zone taxation
Do Free Zone companies need to register for VAT?
Yes, Free Zone companies must register for VAT if they meet the standard thresholds (AED 375,000 mandatory, AED 187,500 voluntary). Designated Zone benefits only apply to goods, not services.
Is a Free Zone company exempt from Corporate Tax?
Free Zone companies are not automatically exempt. To qualify for 0% CT on qualifying income, they must meet QFZP requirements including substance, qualifying activities, and de minimis rules.
What happens if my Free Zone company sells to mainland UAE?
For VAT: Standard 5% applies when goods leave a Designated Zone to mainland. For CT: If mainland revenue exceeds 5% of total (or AED 5M), the entire income may be subject to 9% CT.
Do I need a CT registration for my Free Zone company?
Yes, all Free Zone companies must register for Corporate Tax with the FTA, regardless of whether they qualify for the 0% rate. CT returns must also be filed annually.
Can I recover VAT on purchases in my Free Zone?
Yes, VAT-registered Free Zone companies can recover input VAT on purchases related to their taxable business activities, subject to the standard recovery rules.
Need Free Zone Tax Compliance?
TaxSey helps UAE Free Zone companies navigate complex VAT and Corporate Tax requirements