UAE VAT for Free Zone Companies 2026 — Complete Guide
UAE Value Added Tax (VAT) at 5% was introduced on 1 January 2018. Understanding how VAT applies to UAE free zone companies is essential for compliance and avoiding penalties. This guide covers VAT registration thresholds, zero-rated vs exempt supplies, and the Designated Zone concept.
In this guide:
UAE VAT Registration Thresholds
| Threshold Type | Annual Revenue | Action Required |
|---|---|---|
| Mandatory Registration | AED 375,000+ | Must register for VAT |
| Voluntary Registration | AED 187,500 – 375,000 | Can choose to register |
| Below Threshold | Under AED 187,500 | No VAT registration needed |
Designated Zones vs Regular Free Zones
For VAT purposes, UAE free zones are divided into two categories:
- Designated Zones: Treated as “outside UAE” for VAT on goods. Specific zones including JAFZA, DAFZA, Dubai Industrial City, and others. Supply of goods between designated zones and foreign jurisdictions is zero-rated.
- Regular Free Zones: Treated the same as mainland UAE for VAT purposes. VAT applies to supplies in the usual way.
Common VAT Treatment for Free Zone Companies
- B2B services to UAE mainland clients: Standard 5% VAT applies
- Export of services to international clients: Generally zero-rated (0%)
- Export of goods: Zero-rated (0%)
- Supply between UAE free zones: Varies by zone type — check with FTA or tax advisor
VAT Filing Requirements
VAT-registered businesses must file quarterly (or monthly for large companies) VAT returns via the FTA EmaraTax portal. Returns are due by the 28th day of the month following the quarter end.
Disclaimer: This is general information. Consult a UAE VAT specialist for advice specific to your business.