UAE VAT for Free Zone Companies — Complete Guide 2026
UAE Value Added Tax (VAT) was introduced on 1 January 2018 at 5%. UAE free zone companies are generally subject to UAE VAT unless they are in a “designated zone” treated as outside UAE for VAT purposes. Here is the complete 2026 guide.
UAE VAT — Key Facts
- UAE VAT rate: 5%
- UAE VAT registration threshold: AED 375,000 taxable supplies per year (mandatory); AED 187,500 (voluntary)
- UAE VAT is administered by the Federal Tax Authority (FTA)
- UAE VAT returns: quarterly or monthly depending on annual turnover
UAE Free Zones and VAT — Two Categories
Category 1: Free Zones Subject to UAE VAT (Majority of Free Zones)
Most UAE free zones are treated as inside UAE for VAT purposes. This means:
- Supplies between companies in these free zones and UAE mainland are standard VAT transactions
- Sales to UAE customers are subject to 5% VAT
- International sales (exports) are zero-rated (0% VAT)
- VAT registration is mandatory once turnover exceeds AED 375,000
These zones include: IFZA, SPC, Meydan, RAKIC, and most non-customs-controlled free zones.
Category 2: UAE VAT Designated Zones
Certain UAE free zones are declared “designated zones” by Cabinet Decision and are treated as OUTSIDE UAE for VAT purposes. For goods stored or moved within these zones:
- Supply of goods in a designated zone to another entity in the SAME designated zone is treated as outside the scope of UAE VAT
- Supply of goods from a designated zone INTO UAE mainland is treated as an import (reverse charge VAT applies to the mainland recipient)
- Services (unlike goods) are NOT treated as outside UAE VAT in designated zones
UAE VAT designated zones include: JAFZA, DAFZA, Khalifa Industrial Zone Abu Dhabi (KIZAD), Sharjah Airport International Free Zone, and several others.
Practical UAE VAT Guide for Free Zone Companies
Software / Consulting Companies (e.g., IFZA, DMCC)
- Services to UAE mainland clients: 5% VAT (standard rate) if you are VAT registered
- Services to clients outside UAE: Zero-rated (0%) if the place of supply is outside UAE
- Reverse charge: If you receive services from overseas suppliers, you may need to account for VAT under the reverse charge mechanism
Trading Companies (JAFZA Designated Zone)
- Goods stored in JAFZA and sold to another JAFZA company: Outside UAE VAT scope
- Goods exported from JAFZA to a non-UAE country: Outside UAE VAT scope
- Goods moved from JAFZA to UAE mainland: Treated as import by mainland recipient
UAE VAT Registration Process
- Register on the FTA portal (eservices.tax.gov.ae)
- Provide company details, licence, and financial information
- FTA issues TRN (Tax Registration Number) typically within 5-10 working days
- Issue VAT invoices using the TRN for all taxable supplies
Frequently Asked Questions
If my UAE free zone company only has clients outside UAE, do I need to register for VAT?
If ALL your supplies are to clients outside UAE (zero-rated exports of goods or zero-rated services with place of supply outside UAE), your taxable supplies may be zero-rated, not exempt. Zero-rated supplies still count toward the VAT registration threshold (AED 375,000) and you should register if you exceed it. However, as a registered business making zero-rated supplies, you can reclaim input VAT on your UAE expenses. Registration is generally beneficial even if all revenue is zero-rated.