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