Do free zone companies charge VAT? Free zones vs designated zones

The registration rules apply to free zone companies in the same way as mainland ones. If taxable supplies and imports exceed AED 375,000 over 12 months, or are expected to within 30 days, the company must register, according to the FTA. A consultancy in a Dubai free zone billing UAE clients AED 50,000 plus VAT for a project charges the same 5% as a mainland competitor.

Designated zones are specific areas listed by Cabinet Decision that meet conditions set in the VAT law, such as being fenced and having customs controls on goods entering and leaving. The FTA's general procedure TAXP010, updated in October 2026, explains how free zones and designated zones are treated for corporate tax, VAT and excise. Not every free zone is a designated zone, and not every part of a free zone necessarily is either.

In a designated zone, certain supplies of goods, such as goods moving between designated zones or within them under the right conditions, can be treated as outside the UAE for VAT. Services provided in a designated zone are generally treated like services anywhere else in the UAE and carry 5%.

How the main transaction types usually look, subject to the facts and the FTA guidance.

• Free zone company (non-designated) selling services to a mainland customer: 5% VAT.
• Company in a designated zone selling goods to a mainland customer: the goods enter the UAE for VAT purposes, so VAT applies, often through import rules.
• Goods moving between two designated zones under customs control: can be outside the scope of VAT if the conditions are met.
• Designated zone company selling services to a mainland customer: 5% VAT, as with any UAE supplier.
• Goods consumed in a designated zone rather than resold or used to make goods: can be taxable; check the rules.

A logistics company operating from a warehouse in a designated zone stores goods for a German manufacturer, moves part of the stock to another designated zone and sells some directly to a contractor in Dubai. Storage and handling fees to the German client are services, and their treatment turns on the export of services rules. The stock movement between zones may be outside scope if conditions are met. The sale to the Dubai contractor brings the goods into the UAE and attracts VAT.

Three transactions, three different treatments, all from one warehouse. This is exactly where a mislabelled invoice line leads to a wrong return.

The evidence matters as much as the label. For each goods movement treated as outside scope, keep the customs documents that show the goods stayed under control and moved between qualifying zones. For each storage invoice to the overseas client, keep the contract and proof of where the client is established. If the FTA reviews the return, those papers decide whether the treatment stands, and gathering them a year later from a freight forwarder is slow work.

In HelloBooks, each invoice line carries its own VAT treatment: standard-rated, zero-rated, exempt, out of scope or reverse charge. For designated zone businesses, the AI learns which customers, routes and item types are treated which way once your tax agent has agreed the approach, and it flags lines that break the pattern, such as a mainland delivery address on an out-of-scope line. Keep customs documents attached to the relevant invoices. Companies with complex zone flows can ask us to set up custom treatment rules and reports through /book-a-demo.