Are Free Zone Companies in UAE required to do VAT Registration ?

Are Free Zone Companies in UAE required to do VAT Registration ?

The million dollar question, which everyone in UAE has been pondering over for past few months, since the VAT Law of UAE has been released is : Are Free Zone Companies in UAE required to do VAT Registration ?

With the Federal Tax Authority (FTA) of UAE having now released the executive regulations of the VAT law,  it is quite clear now that all Free Zone Companies whose annual taxable supplies exceeds the mandatory threshold criteria  of AED 375,000/- are required to register for VAT. It is further advised that all Free Zone Companies, whose annual taxable supplies or annual expenses exceed voluntary threshold criteria of AED 187,500 /- over preceding 12 months or likely to exceed within next 30 days of applying for VAT Registration, should also ideally do the VAT Registration, in order to allow them to claim refund of input VAT paid by them on all goods and services procured by them in the course of running their business. For avoidance of doubt, taxable supplies is the total of standard rated supplies and zero rated supplies, made by any business from UAE.

It is also important to note that all Free Zones in UAE are not going to be classified as ‘Designated Zones’, as per the provisions of VAT Law of UAE. There are only going to be a few of the Free Zones in UAE, which are going to be classified as ‘Designated Zones’ under the VAT Law and Executive Regulations of VAT Law of UAE, as determined by a Cabinet notification. The criteria that any Free Zone should meet in principle in order to be classified as a ‘Designated Zone’ is that it should be a fenced space setup as a Free Zone under the regulations of respective Emirates in UAE, which cannot be entered or exited except through designated roads, which have got Gates for purposes of customs control for any movement of goods.

The companies in ‘Designated Zones’ are also required to register for VAT, if their taxable supplies exceed the threshold criteria. However if any goods are supplied within the same designated zone or to any other designated zone or exported outside of UAE, then they are not subject to VAT. The Free Zones, which are not classified as Designated Zones, will be subject to the same rules for supply of goods, with respect to VAT as is applicable to mainland companies in UAE.

In case, any services are provided by companies in Free Zones (whether classified as a Designated Zone or not), to other Free Zone Companies or to mainland UAE companies, they will be subject to VAT , in the same way as mainland UAE companies. Hence, there is no difference at all in the VAT applicability for Companies providing Services, whether they operate from Mainland UAE or from any Free Zone in UAE.

Taking a lead on this, DMCC Authority (a free trade zone in Dubai) urged companies incorporated under DMCC to get registered under VAT before the due date to avoid penalty.

As per the UAE Federal Cabinet Decision no 40, the penalty for non-registering a taxable person under VAT Law  within the due date will be AED 20,000/- To avoid such penalty, we urge all taxable persons operating in Free Zones of UAE, to register well before the due date.

Our team can provide you with a one stop solution for your VAT Registration, VAT Compliance & VAT Advisory Services in UAE. Please call us at : +971 566835302 / +971 563524089 or email us at; or contact us through our website:

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5 Comments on "Are Free Zone Companies in UAE required to do VAT Registration ?"

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1 year 4 months ago

if company which annual turnover is less than 18500 then is it liable to pay the vat

1 year 3 months ago

free Zone company in designated Area, Company given contract to sub-agents in mainland they charged tax to designated free zone company, freezone company can claim the Input Tax ?

1 year 1 month ago

write a paper for me

Regards! I enjoy it.