Is your free zone status the same for Corporate Tax and VAT?
No. Under FTA Public Clarification TAXP010, the definition of a Free Zone or a Designated Zone differs between the Corporate Tax, Excise Tax and VAT laws, and businesses must determine their status for each Tax Law separately. A VAT Designated Zone is not automatically a Designated Zone for Corporate Tax, and being set up in a Free Zone does not by itself mean a 0% Corporate Tax rate. For Corporate Tax, confirm your status with your Free Zone authority; for Excise Tax, with the Free Zone authority or the Warehouse Keeper; for VAT, check the FTA’s published List of Designated Zones and confirm the conditions with your Free Zone authority.
What is Public Clarification TAXP010, and why does it matter to free zone businesses?
TAXP010 is a Tax Public Clarification issued by the Federal Tax Authority (FTA) titled “Free Zones and Designated Zones for Tax Purposes”. It explains what counts as a Free Zone or a Designated Zone under each Tax Law, and the key differences in the definitions between those laws.
The clarification notes that businesses operating in a Free Zone may be subject to specific rules and treatment under the UAE’s Tax Laws: Corporate Tax, Excise Tax and Value Added Tax. It therefore separates four concepts:
- A Corporate Tax Free Zone.
- A Corporate Tax Designated Zone.
- An Excise Tax Designated Zone.
- A VAT Designated Zone.
It is also worth knowing that TAXP010 states the FTA’s position and neither amends nor seeks to amend any provision of the legislation it covers. It is therefore effective as of the date of implementation of the relevant legislation, unless stated otherwise.
The short answer: each Tax Law has its own definition
The table below summarises the four concepts as TAXP010 describes them, and where a business confirms its status:
| Concept | Basis as stated in TAXP010 | How to confirm |
|---|---|---|
| Corporate Tax Free Zone | A designated and defined geographic area within the UAE, specified in a Cabinet decision issued at the suggestion of the Minister (Article 1, Corporate Tax Law) | Your Free Zone authority |
| Corporate Tax Designated Zone | A designated zone under the VAT Law that has also been included as a Free Zone under the Corporate Tax Law (Article 1, Cabinet Decision No. 100 of 2023) | Your Free Zone authority |
| Excise Tax Designated Zone | A fenced free zone, or an area specified by the FTA, meeting the conditions in Article 15(2) of the Excise Tax Executive Regulation | Free Zone authority or the Warehouse Keeper |
| VAT Designated Zone | A Free Zone listed in Cabinet Decision No. 59 of 2017 and its amendments that meets the conditions in Article 51(1) of the VAT Executive Regulation | FTA List of Designated Zones + your Free Zone authority |
In practice, the answer to “is my company in a free zone?” can change depending on which tax you are asking about. A free zone licence alone does not answer the question for all three taxes.
Free Zones and Designated Zones for Corporate Tax
Article 1 of the Corporate Tax Law defines a Free Zone as a designated and defined geographic area within the UAE that is specified in a decision issued by the Cabinet at the suggestion of the Minister.
A Designated Zone for Corporate Tax purposes, under Article 1 of Cabinet Decision No. 100 of 2023, is a designated zone according to what is stated in the VAT Law, and which has been included as a Free Zone in accordance with the Corporate Tax Law.
Why a VAT Designated Zone is not automatically a Corporate Tax Designated Zone
TAXP010 states plainly that a VAT Designated Zone is not automatically considered a Designated Zone for Corporate Tax purposes. To be treated as a Corporate Tax Designated Zone, the specific zone must be recognised as both a VAT Designated Zone and a Free Zone for Corporate Tax purposes.
To determine whether a business operates in a Free Zone or a Designated Zone for Corporate Tax purposes, TAXP010 directs taxpayers to check with their respective Free Zone authority.
A free zone does not automatically mean 0% Corporate Tax
Corporate Tax is imposed on a Qualifying Free Zone Person at 0% on Qualifying Income (Article 3(2)(a), Corporate Tax Law). That rate depends on meeting the conditions prescribed under the Corporate Tax Law, Cabinet Decision No. 100 of 2023, Ministerial Decision No. 229 of 2025 and any other conditions prescribed by the Minister.
TAXP010 also explains that if a Qualifying Free Zone Person, at any time during a Tax Period, fails to meet any of the conditions in Article 18(1) of the Corporate Tax Law, Cabinet Decision No. 100 of 2023, Ministerial Decision No. 229 of 2025 or any other conditions prescribed by the Minister, it ceases to be a Qualifying Free Zone Person from the beginning of the relevant Tax Period and for the subsequent four Tax Periods (Article 5(2), Ministerial Decision No. 229 of 2025).
Where the difference shows: distribution by a Qualifying Free Zone Person
One of the Qualifying Activities listed in Ministerial Decision No. 229 of 2025 is the “distribution of goods or materials in or from a Designated Zone” (Article 2(1)(l)). All Qualifying Free Zone Persons must be incorporated or registered in, and operate from, a Free Zone. To fall under the distribution activity specifically, however, the distribution must be carried out in or from a Designated Zone.
Accordingly, a Qualifying Free Zone Person engaged in distribution may benefit from the 0% rate on its Qualifying Income only where the distribution is carried out in or from a Corporate Tax Designated Zone and all other conditions for the activity are met, including any additional procedures prescribed by the FTA (Article 2(3), Ministerial Decision No. 84 of 2025).
This is why confirming your zone’s status for Corporate Tax, and not only for VAT, is a key step for trading and distribution companies in free zones.
VAT Designated Zones
Under TAXP010, a VAT Designated Zone is any specific fenced geographic area specified in the List of Designated Zones, provided it meets the conditions in Article 51(1) of the VAT Executive Regulation. A zone that meets them is treated as outside the UAE for VAT. In brief, the conditions are:
- The area is a specific fenced geographic area with security measures and customs controls to monitor entry and exit.
- The zone has internal procedures for keeping, storing and processing goods within it.
- The zone’s operator complies with the procedures set by the FTA.
How to check your VAT position
TAXP010 asks a company to do two things: review the List of VAT Designated Zones published on the FTA website, and confirm with the relevant free zone authority that the Article 51(1) conditions are also met by the specific area where the company is based. A zone appearing on the list does not replace checking the location you actually operate from.
Excise Tax Designated Zones (in brief)
The Excise Tax Law defines a Designated Zone as any fenced area established as a free zone that can only be entered or exited through a designated road, or any area the FTA designates as subject to the supervision of a Warehouse Keeper, in line with the Excise Tax Executive Regulation.
- A fenced Free Zone must have security measures restricting the entry and exit of individuals and the movement of Excise Goods under FTA controls, be controlled and supervised by a customs department, and have an appointed Warehouse Keeper.
- A geographic area that is not a Free Zone must be a specified geographic area with similar security measures and an appointed Warehouse Keeper, who applies to the FTA to register it as a Designated Zone.
Businesses can confirm their status with the Free Zone authority, or with the Warehouse Keeper to check whether the FTA has approved the specific area as an Excise Tax Designated Zone.
How to confirm your company’s status: practical steps
Based on TAXP010, you can organise the check as follows:
- Corporate Tax: ask your Free Zone authority whether your location is a Free Zone for Corporate Tax purposes, and whether it is a Designated Zone for Corporate Tax purposes.
- VAT: review the FTA’s List of Designated Zones, then confirm with your Free Zone authority that the Article 51(1) conditions are met in the specific area where your company is based.
- Excise Tax (if relevant to your activity): confirm with the Free Zone authority or the Warehouse Keeper.
- Distribution: if you rely on distribution as a Qualifying Activity, make sure it takes place in or from a Corporate Tax Designated Zone and that the other conditions are met.
A useful practice, and an organisational habit rather than a legal requirement stated in TAXP010, is to keep any confirmations you receive with your company records and to review them when your location or scope of activity changes.
Common mistakes
- “My licence is in a free zone, so I’m in a Designated Zone for every tax.” Not so: TAXP010 requires status to be determined for each Tax Law separately.
- “My zone is listed for VAT, so it’s a Corporate Tax Designated Zone.” Not automatically: it must be recognised both as a VAT Designated Zone and as a Free Zone for Corporate Tax.
- “A free zone means 0% Corporate Tax.” The 0% rate applies to the Qualifying Income of a Qualifying Free Zone Person, and only when the prescribed conditions are met.
- “Being on the list is enough.” For VAT, TAXP010 also asks you to confirm the conditions are met in the specific area where your company is based.
Frequently asked questions
Is free zone status the same for Corporate Tax and VAT?
No. Under FTA Public Clarification TAXP010, the definition of a Free Zone or a Designated Zone differs between Corporate Tax, Excise Tax and VAT, and businesses must determine whether they are in a Free Zone or a Designated Zone for each Tax Law separately. Your status can therefore differ from one tax to another, and a free zone licence alone does not answer the question.
Is a VAT Designated Zone automatically a Corporate Tax Designated Zone?
No. TAXP010 states that a VAT Designated Zone is not automatically considered a Designated Zone for Corporate Tax purposes. To qualify, the specific zone must be recognised both as a VAT Designated Zone and as a Free Zone for Corporate Tax purposes, in line with the definition in Article 1 of Cabinet Decision No. 100 of 2023.
How do I confirm my zone status for Corporate Tax?
TAXP010 directs taxpayers to check with their respective Free Zone authority to confirm whether they operate in a Free Zone or a Designated Zone for Corporate Tax purposes. As an organisational practice rather than a legal requirement, it helps to keep that confirmation with your company records and review it if your location changes.
How do I check if I’m in a VAT Designated Zone?
TAXP010 sets out two steps: review the List of VAT Designated Zones published on the FTA website, then confirm with the relevant free zone authority that the conditions in Article 51(1) of the VAT Executive Regulation are also met by the specific area of the zone where your company is based.
Does being in a free zone mean 0% Corporate Tax automatically?
No. The 0% rate applies to the Qualifying Income of a Qualifying Free Zone Person and depends on meeting the conditions in the Corporate Tax Law, Cabinet Decision No. 100 of 2023, Ministerial Decision No. 229 of 2025 and any conditions set by the Minister. If it fails to meet any of them at any time during a Tax Period, it ceases to be a Qualifying Free Zone Person from the beginning of that Tax Period and for the subsequent four Tax Periods.
Why does the Designated Zone matter for distribution activity?
Distribution of goods or materials in or from a Designated Zone is a Qualifying Activity under Ministerial Decision No. 229 of 2025. A Qualifying Free Zone Person engaged in distribution may benefit from 0% on its Qualifying Income only where the distribution is carried out in or from a Corporate Tax Designated Zone and all other conditions, including any additional FTA procedures, are met.
Who confirms an Excise Tax Designated Zone?
According to TAXP010, businesses can confirm whether they are in an Excise Tax Designated Zone with their Free Zone authority, or with the Warehouse Keeper to check whether the FTA has approved the specific area. A Warehouse Keeper is appointed for every Excise Tax Designated Zone, whether it is a fenced free zone or an area specified by the FTA.
Conclusion
TAXP010 makes clear that “free zone” is not a single label that applies across every tax. Corporate Tax, Excise Tax and VAT each have their own definition, conditions and route to confirmation, and a VAT Designated Zone does not automatically become a Corporate Tax Designated Zone. The practical starting point is to confirm your company’s status for each tax separately with the bodies TAXP010 identifies.
If you would like help organising your company’s records and preparing your Corporate Tax or VAT return for your review and approval, within an agreed scope, you can get in touch with EQRAR or message us on WhatsApp at +971 55 738 5159. For more, see our Corporate Tax services and VAT services.
Sources
- Federal Tax Authority — Public Clarification TAXP010 “Free Zones and Designated Zones for Tax Purposes” (PDF, Arabic/English): https://tax.gov.ae/Datafolder/Files/Pdf/2026/Guide/TAXP010%20-%20Designated%20Zones%20for%20CT%20VAT%20Excise%20-%2010%202026.pdf
- Federal Tax Authority — Guides & Public Clarifications page: https://tax.gov.ae/en/taxes/vat/guides.references.aspx
Read also
This article is for general awareness. It does not replace the official text of the clarification or a review tailored to your company.