Hi, I'm Mike Anderson, planning to start a business in a Dubai free zone. I'm confused about VAT obligations. Can anyone clarify whether free zone companies need to register for and pay VAT in the UAE, or are they exempt?
Hi Mike Anderson,
Freezone companies in the UAE must pay VAT if they meet the mandatory registration threshold, even if they are set up as a freezone through freezone company setup in the UAE.
In simple terms, being in a free zone does not automatically exempt your business from VAT. If your company’s taxable supplies exceed AED 375,000 per year, you must register for VAT at 5%. If revenue is between AED 187,500 and AED 375,000, registration is optional. In practice, VAT depends on:
- Where your customers are located (UAE mainland or outside the UAE)
- Whether your free zone is a “Designated Zone.”
- The type of goods or services you sell
For example, a company in DMCC providing marketing services to UAE mainland clients usually charges VAT. However, exports outside the UAE may be zero-rated. Similarly, companies in RAKEZ are subject to the same federal VAT rules. This structure works best for:
- Service providers billing international clients
- E-commerce or trading businesses
- Consultants working across borders
If you’re planning to start a free zone company and want clarity on VAT from day one, it’s smart to align your structure with the right business setup in the UAE strategy.
