UAE VAT for Free Zone Companies — Complete 2026 Guide
UAE VAT applies to most UAE free zone companies meeting the registration threshold. Here is the complete 2026 guide on UAE VAT for free zone companies.
In this guide:
UAE VAT Basics
- Rate: 5% standard rate; 0% for zero-rated supplies; exempt for some supplies
- Introduced: January 2018
- Applies to: Most goods and services supplied in UAE
Do Free Zone Companies Pay UAE VAT?
- Yes: UAE VAT applies to free zone companies meeting the registration threshold
- Misconception: Free zone does NOT mean VAT-exempt; only specific Designated Zone rules apply to physical goods
- Services: Always subject to standard UAE VAT rules regardless of free zone location
VAT Registration Threshold
- Mandatory registration: Taxable supplies (UAE-placed supplies) exceeding AED 375,000 per 12 months
- Voluntary registration: Can register if taxable supplies exceed AED 187,500
- Registration: Via EmaraTax (tax.gov.ae)
Export Services — Zero-Rating (0% VAT)
- International services: Services supplied to customers outside UAE and where place of supply is outside UAE are zero-rated (0% VAT)
- Free zone company exporting services: If your UAE free zone company provides services to non-UAE clients, the supply may be zero-rated
- Place of supply rules: Check FTA place of supply rules; where the customer is located matters
VAT Return Filing
- Quarterly filing: Most UAE businesses file VAT returns quarterly
- Deadline: 28th of the month following the tax period end
- Payment: Pay VAT liability on same deadline; late payment penalty 2% immediately + 4% per month
Input VAT Recovery
- Reclaim VAT: VAT-registered companies can reclaim input VAT on business expenses
- Blocked input VAT: Cannot reclaim VAT on entertainment; some motor vehicle costs
- Export businesses: May reclaim input VAT on UAE expenses even if output is zero-rated