Do free zone companies need to register for VAT in the UAE?
Yes, if it meets the normal VAT registration test. The Federal Tax Authority treats free zones as part of the UAE for VAT unless they are listed Designated Zones, and even Designated Zone businesses are deemed UAE-resident. So the AED 375,000 mandatory threshold can still apply to a free zone company. [1][2][7]
Key takeaways
- A free zone that is not a Designated Zone is treated like any other part of the UAE for VAT. [1]
- A Designated Zone is treated as outside the UAE only for certain supplies of goods. Services follow the normal UAE rules, and the business itself is deemed UAE-resident. [1][2]
- Zero-rated supplies are taxable supplies at 0% and count towards the AED 375,000 turnover test. Out-of-scope supplies are neither taxable nor exempt. [8][9]
- The FTA says whether a Designated Zone goods trader must register depends on its activities and supplies, and it may ask for a business flow and supply chain documents. [6]
- We found no official page giving a blanket yes or no for a free zone company that trades only outside the UAE. The answer turns on the type of supply.
What is the VAT difference between a Designated Zone and any other free zone?
A Designated Zone is a free zone named by Cabinet Decision that also meets set control conditions, and it is treated as outside the UAE only for specific supplies of goods. Every other free zone is treated like any other part of the UAE. [1][2]
The FTA guide explains that both fenced and unfenced free zones fall inside UAE territory for VAT unless they qualify as Designated Zones, and that where a free zone is not a Designated Zone, it is treated like any other part of the UAE. [1] Under Article 51 of the Executive Regulation, a listed zone is outside the UAE only if it is a specific fenced area with security and customs controls, has internal procedures for handling goods, and its operator follows FTA procedures. A zone that breaches a condition is treated as inside the UAE. [2]
Registration is not switched off either way. The UAE government portal says special rules apply to supplies in designated zones, but businesses established there may still need to register if the registration criteria are met. [5] See our guides on how to register for VAT in the UAE and the VAT registration threshold.
Which free zones are Designated Zones?
Only free zones named in a Cabinet Decision are Designated Zones. The FTA's published list is based on Cabinet Decision No. 59 of 2017, effective 1 January 2018, as amended by Cabinet Decision No. 35 of 2018. [3]
The list is grouped by emirate. Entries include the Free Trade Zone of Khalifa Port in Abu Dhabi, Jebel Ali Free Zone (North-South) and Dubai Airport Free Zone in Dubai, RAK Free Trade Zone and Fujairah Free Zone. [3] A 2021 FTA news item refers to a full list of 27 Designated Zones, so confirm the current list on the FTA Legislation page rather than relying on a copy. [4]
Corporate Tax is a separate tax; see our guide to free zone 0 per cent corporate tax.
Are goods and services treated differently in a Designated Zone?
Yes. Goods supplied inside a Designated Zone can fall outside UAE VAT in defined cases, but the place of supply of services in a Designated Zone is inside the UAE. The business itself is deemed to have a place of residence in the UAE. [1][2]
For goods, the Executive Regulation says that where goods are supplied within a Designated Zone to a person to be consumed, the place of supply is in the UAE, except where: (a) the goods are incorporated into, or used in producing, another good in the same zone that is not consumed; (b) the goods are delivered outside the UAE and the supplier keeps commercial or official evidence plus customs evidence of removal from the zone; or (c) the goods moved to a place in the UAE and the supplier holds official evidence that VAT was applied on that import. [2] Cabinet Decision No. 88 of 2021 amended this text from 30 October 2021, and the FTA guide is dated July 2018, so rely on the amended Regulation. [1][2][4]
What is the difference between zero-rated and out-of-scope supplies?
A zero-rated supply is a taxable supply charged at 0%, so it still counts as taxable. An out-of-scope supply is neither taxable nor exempt, so UAE VAT does not apply to it. [8][9]
The FTA Taxable Person Guide says zero-rated supplies are still treated as taxable supplies in all other respects, so the supplier can recover VAT on its own business expenditure. A supply that is neither taxable nor exempt is outside the scope of UAE VAT. [8] The UAE government guidance adds that zero-rated supplies must be recorded in the VAT account and reported on the tax return, and that taxable turnover for the AED 375,000 test includes zero-rated supplies. [9]
| Point | Zero-rated | Exempt | Out of scope |
|---|---|---|---|
| Taxable supply? | Yes, at 0% [8] | No [8] | No - neither taxable nor exempt [8] |
| VAT charged to customer? | No [9] | No [8] | UAE VAT does not apply [1] |
| Input tax on costs | Recoverable as for standard-rated supplies [8] | Normally not recoverable [8] | For Designated Zone businesses, recoverable in full if all supplies are or would be liable to VAT in the UAE [1] |
| Counts towards AED 375,000? | Yes [9] | Not a taxable supply [8] | Not a taxable supply [8] |
Does a free zone company that trades only outside the UAE need to register?
Not automatically, and not never. The Decree-Law counts the value of taxable goods and services towards the threshold, so the question is whether the company's overseas sales are taxable zero-rated supplies or out-of-scope supplies. No official page gives a single answer for all cases. [7][8]
The registration test for a person with a place of residence in the UAE is whether the value of supplies counted under Article 19 exceeded the mandatory threshold of AED 375,000 over the previous 12 months, or is expected to within the next 30 days. [7][2] The legislation points to these cases:
- Services to overseas customers. The place of supply of services is the supplier's place of residence, and a Designated Zone business is deemed resident in the UAE. [7][2] Export of services is zero-rated where, among other conditions, the recipient has no place of residence in an Implementing State and is outside the UAE when the services are performed. [2] Zero-rated turnover counts towards the threshold. [9]
- Goods sold in a Designated Zone and delivered abroad. The place of supply is outside the UAE where the supplier keeps the commercial, official and customs evidence of removal from the zone. [2] The FTA guide describes many such supplies of goods as outside the scope of UAE VAT, subject to detailed record keeping. [1]
- Goods exported from a free zone that is not a Designated Zone. The zone is treated as part of the UAE, so the general export rule applies: direct exports are zero-rated if the goods are physically exported outside the Implementing States, or placed in customs suspension, within 90 days, and the exporter keeps the required evidence. [1][2]
The Decree-Law also allows the FTA to except a taxable person from mandatory registration on request if its supplies are only subject to the zero rate. The government guidance adds that an excepted person does not submit regular returns and cannot recover input tax. [7][9]
What should a free zone company check before registering?
Check your zone's status, classify each supply as goods or services, then compare your counted turnover with the AED 375,000 threshold. If registration is required, the Executive Regulation says to apply within 30 days. [2]
- Confirm whether your zone is on the FTA list and meets the Article 51 conditions. [2][3]
- Separate goods from services and note where each is supplied and delivered. [1][2]
- Keep the commercial, official and customs evidence the Regulation requires for goods leaving a Designated Zone. [2]
- Add up taxable supplies, including zero-rated ones, over 12 months and estimate the next 30 days. [7][9]
- Apply within 30 days if required; the FTA may ask a Designated Zone goods trader for a business flow and supply chain documents, and a late application brings a late registration penalty. [2][6]
How GCC Filings can help
GCC Filings Bookkeeping LLC is a Dubai firm. Its VAT Return Filing & Tax Compliance service covers VAT registration, quarterly VAT return filing (Form 201), voluntary disclosures and audits. If you run a free zone company and are unsure how your supplies are classified, we can talk through your situation and support the registration and filing steps.
You can also see our wider VAT compliance services, compare mainland, free zone and offshore structures, or browse all services and the blog. To get in touch, call +971 4 557 4802, email [email protected], or visit Office 2403, East Wing, Latifa Towers, Sheikh Zayed Road, Dubai.
Limits of this guide
Tax rules, thresholds and Designated Zone lists change, and your facts may differ. Always confirm the current position on the Federal Tax Authority website at tax.gov.ae. This article is general information and not tax or legal advice.
Frequently asked questions
Is a free zone company automatically exempt from VAT?
No. The FTA guide says both fenced and unfenced free zones count as inside the UAE for VAT unless they qualify as Designated Zones. Even a Designated Zone business is deemed to have a place of residence in the UAE, so it must register, report and account for VAT under the normal rules. [1][2]
Where can I find the list of Designated Zones?
The FTA guide says the free zones listed by Cabinet Decision as Designated Zones are on the Legislation tab of tax.gov.ae. The FTA's published list is based on Cabinet Decision No. 59 of 2017 and its 2018 amendment, and an FTA news item from 2021 refers to 27 zones. Check the current list. [1][3][4]
Is a service supplied inside a Designated Zone outside the scope of VAT?
No. The Executive Regulation says the place of supply of services is inside the UAE if it is in a Designated Zone, and the FTA guide confirms services follow the normal UAE VAT rules. Services supplied to qualifying overseas customers may still be zero-rated if the export conditions are met. [2][1]
Can a Designated Zone company recover VAT on its costs?
The FTA guide says Designated Zone businesses follow the normal input tax rules: full recovery where all supplies are liable to VAT, or would be if made in the UAE, and apportionment where exempt supplies are made. To recover VAT under those rules, the business must be registered with the FTA. [1]
What happens when goods move from a Designated Zone to the mainland?
The FTA guide treats the movement as an import, with import VAT payable by the importer. A VAT-registered importer accounts for it via its VAT return, while an unregistered one pays at the time of import. The guide also sets a special recovery rule where VAT was already paid on purchase in the zone. [1]
Sources
- Federal Tax Authority (UAE). VAT Guide: Designated Zones (VATGDZ1, Issue 1), 2018. https://tax.gov.ae/DataFolder/Files/Pdf/Designated-Zones-VAT-Guide.pdf
- Federal Tax Authority (UAE). Cabinet Decision No. 52 of 2017 and its amendments (Executive Regulation of the VAT Decree-Law), unofficial translation, 2024. https://tax.gov.ae/Datafolder/Files/Legislation/Executive%20Regulation%20of%20Federal%20Decree%20Law%20No%208%20of%202017%20-%20Publish%20-%2004%2010%202024.pdf
- Federal Tax Authority (UAE). Designated Zones for the purposes of Federal Decree-Law No. (8) of 2017 on VAT (list based on Cabinet Decisions No. 59 of 2017 and No. 35 of 2018), 2018. https://tax.gov.ae/-/media/Files/FTA/links/Legislation/VAT/ar/05-designated-zones.pdf
- Federal Tax Authority (UAE). Amendment on Tax Treatment for Supply of Goods in Designated Zones and Connected Shipping/Delivery Services Goes Into Effect on October 30 (news), 2021. https://tax.gov.ae/en/media.centre/news/amendment.on.tax.treatment.for.supply.f.goods.in.designated.zones.and.connected.shipping.aspx
- UAE Government Portal (u.ae). Value Added Tax (VAT). https://u.ae/en/information-and-services/finance-and-investment/taxation/vat/valueaddedtaxvat
- Federal Tax Authority (UAE). VAT Registration (service page), 2026. https://tax.gov.ae/en/services/vat.registration.aspx
- Federal Tax Authority (UAE). Federal Decree-Law No. (8) of 2017 on Value Added Tax (unofficial translation), 2017. https://tax.gov.ae/DataFolder/Files/Pdf/VAT-Decree-Law-No-8-of-2017.pdf
- Federal Tax Authority (UAE). Taxable Person Guide for Value Added Tax (VATG001, Issue 2), 2018. https://tax.gov.ae/-/media/files/en/pdf/guides/taxable-person-guide-june-2018.pdf
- UAE Government Portal (u.ae). Guidance on Zero-Rated and Exempt Supplies. https://assets.u.ae/api/public/content/83fd7b167a6c4d948c161a6c5307f316?v=bf3ffd55
Accessed 20 October 2026. General information only; confirm current rules with the FTA.