Is VAT applicable to free zone companies in the UAE?

Yes, Value Added Tax (VAT) may be levied on free zone companies in the UAE, subject to certain factors like the nature of the business activity, the location of the free zone, and whether the company is engaged in transactions in or outside the UAE.VAT Treatment of Free Zone Companies Designated vs. Non-Designated Free Zones The UAE Federal Tax Authority (FTA) classifies certain free zones as Designated Zones, and they are treated as being outside the UAE for VAT. The intra-group transactions of goods between firms in a Designated Zone may not be subject to VAT. However, the services of businesses in these zones are generally subject to taxation. Non-Designated Free Zones, on the other hand, follow standard VAT rules as applied in the UAE. Transactions In the UAE When a free zone business supplies goods or services to the mainland UAE, VAT at the standard rate (currently 5%) would normally apply. When a free zone business brings goods into the UAE, VAT is usually due under the reverse charge mechanism. International Transactions Supply of goods from a free zone to an overseas customer is normally zero-rated. Export of services to a customer outside the UAE may also be zero-rated where specific conditions determined by the FTA are met. Compulsory VAT Registration A free zone business must register for VAT where its taxable turnover exceeds the mandatory registration threshold as determined by the UAE tax authorities. Alternatively, voluntary registration could be undertaken at the lower voluntary threshold when turnover reaches it. In short, free zone businesses must ascertain their VAT obligations based on their business and customers' locations. It is essential to comply with VAT regulations to avoid penalties. Considering the likelihood of tax law changes, it is highly recommended that a professional tax consultant be consulted.

Is corporate tax applicable to free zone companies in the UAE?

Indeed, corporate tax does apply to businesses in the free zones of UAE, but according to the type of business the company undertakes, sources of income, and whether it possesses the requirements to claim tax incentives.Corporate Tax Structure for Free Zone CompaniesThe UAE imposed a 9% business income tax from June 2023. Free zone companies, however, can have a 0% tax rate if they meet the UAE Ministry of Finance requirements as Qualifying Free Zone Persons (QFZP). Qualifying and Non-Qualifying Free Zone Companies A free zone company may be eligible for a 0% corporate tax on qualifying income if it: Maintains adequate substance in the UAE. Earns revenue from the sale to, or purchase from, other free zone companies or international buyers. Complies with transfer pricing and accounting standards. Mainland UAE business companies (beyond permitted limited activities) will, however, be subject to 9% corporate tax on respective taxable revenues. Tax Treatment Based on Sources of Revenues Revenues from sales among free zones – Typically eligible for a 0% corporate tax rate. Cross-border transaction income – Also potentially eligible for 0% corporate tax, subject to rules. Mainland UAE income – Subject to 9% corporate tax, although certain free zone activities are exempt. Mandatory Tax Registration Even if a company is subject to a 0% rate of corporate tax, tax registration and compliance are still mandatory. Corporate tax return filing on an annual basis is mandatory for all businesses. In conclusionFree zone businesses must determine their tax liability based on their activities and sources of income. Compliance with taxation is required to avoid penalties and be eligible for tax incentives. Because of the potential for tax law changes, consulting a professional tax expert is strongly recommended.

Is there income tax in the United Arab Emirates?

One of the biggest advantages of living and doing business in the United Arab Emirates (UAE) has long been its tax-friendly environment. As of 2025, here’s how income taxation works in the UAE:

1. No Personal Income Tax

Individuals in the UAE do not pay tax on their personal income. Salaries, wages, bonuses, and other personal earnings are entirely tax-free for residents and expatriates alike.
There’s also no tax on capital gains, inheritance, or wealth for individuals.

2. Corporate Tax Introduced

While personal income remains untaxed, the UAE introduced a federal corporate tax effective from 1 June 2023.
The standard corporate tax rate is 9% on business profits exceeding AED 375,000 (~USD 102,000). Profits below this threshold remain tax-free, supporting small businesses and startups.
Companies established in Free Zones may still benefit from a 0% corporate tax rate if they qualify as a 'Qualifying Free Zone Person' under UAE tax law, meaning they meet substance, activity, and reporting requirements.

3. Other Taxes to Consider

Value Added Tax (VAT): You’ll pay a 5% VAT on most things you buy or services.
Excise Tax: There's an extra tax on stuff like tobacco, sugary drinks, and energy drinks.
Customs Duties: Generally at 5% for most imported goods, with certain exemptions for Free Zones.

4. No Personal Wealth or Inheritance Tax

The UAE doesn't tax your overall wealth, what you inherit, or your estate.

Because there’s no income tax, the UAE is still a great place for workers and investors. And the low company tax means it’s still a good place to do business. But, regardless of tax liability, all UAE companies, including those in Free Zones, are required to register with the Federal Tax Authority (FTA) and file annual corporate tax returns.

For accurate guidance, it's advisable to consult with licensed business consultants or legal tax advisors like Offshore Company Services, familiar with the UAE’s evolving corporate tax framework.

=> Full Information: Taxation in the UAE: Corporate Tax, VAT, and Compliance

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