Are Free Zone Companies in the UAE Subject to Corporate Tax and VAT?
Free Zones in the UAE offer unique tax incentives — but recent corporate tax reforms and VAT rules have changed how businesses must comply. Here’s what you need to know.
What Are Free Zones in the UAE?
Free Zones are designated economic areas offering tax and operational incentives to attract foreign investment.
There are over 40 Free Zones across the UAE, including JAFZA, DMCC, RAKEZ, Dubai Internet City, and more.
Are Free Zone Companies Subject to Corporate Tax?
Yes — but under specific conditions.
According to Federal Decree-Law No. (47) of 2022 on Corporate Tax, Free Zone entities enjoy:
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0% tax on Qualifying Income
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9% tax on Non-Qualifying Income
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What Is Qualifying Income?
As per the UAE Ministry of Finance (MoF), qualifying income includes:
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Transactions with other Free Zone companies
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Income from business conducted outside the UAE
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Certain approved activities (e.g., re-export, logistics)
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Non-qualifying income includes:
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Trade with the mainland UAE
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Local real estate or financial activities
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Comparison Between Designated and Non-Designated Zones
| Aspect | Designated Free Zones | Non-Designated Free Zones |
|---|---|---|
| Corporate Tax | 0% on qualifying income | 9% on taxable profits |
| VAT | Treated as outside UAE for certain goods | Fully applicable |
| Domestic Transactions | Limited or exempt | Fully taxable |
| Registration | Mandatory with FTA | Mandatory with FTA |
Do Free Zone Companies Need to Register for Corporate Tax and VAT?
Yes
Even companies that benefit from 0% tax must register for both Corporate Tax and VAT with the Federal Tax Authority (FTA).
Failure to register or file returns on time can lead to penalties and fines.
How YAS ACCOUNT Supports Free Zone Compliance
YAS ACCOUNT simplifies compliance for Free Zone companies by offering:
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Automatic identification of qualifying vs non-qualifying income
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Correct application of tax rates (0% or 9%)
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Automatic VAT calculation based on zone classification
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Separate corporate tax & VAT return generation
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Direct integration with FTA e-filing system
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