UAE clarifies free-zone status across corporate tax, VAT and excise

The clarification interprets existing legislation rather than creating a new October exemption. A VAT designated zone does not automatically qualify as a corporate-tax designated zone: it must also be recognised as a free zone under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. Taxpayers should obtain confirmation from their relevant free-zone authority.^[1][2][3]

Distribution and the 0% corporate-tax rate

Under article 3(2) of that law, qualifying free-zone persons receive the 0% rate on qualifying income. Cabinet Decision No. 100 of 2023 distinguishes income from free-zone counterparties from qualifying activities involving other counterparties. Recognition of the location is therefore only one part of the analysis; the income and taxpayer must also satisfy the applicable conditions.^[3][4]

Ministerial Decision No. 229 of 2025, articles 2(1)(l) and 2(3)(l), treats distribution in or from a designated zone as a qualifying activity. Goods entering the UAE must be imported through that zone and supplied to customers that resell, process or alter them for sale or resale, or to a public benefit entity. Merely holding a free-zone licence does not establish these transaction conditions.^[1][5]

The same decision requires audited financial statements and limits non-qualifying revenue to the lower of 5% of total revenue and AED5 million. Article 5(2) provides that failure to satisfy qualifying-person conditions can remove that status from the start of the relevant period and for four subsequent tax periods. The separate de minimis rules must be considered before concluding that a particular receipt causes disqualification.^[5]

Different tests for VAT and excise

For VAT, Cabinet Decision No. 52 of 2017, article 51(1), requires a Cabinet-designated area with fencing, security and customs controls, internal goods-handling procedures and compliance by its operator with FTA procedures. TAXP010 tells businesses to check both the designated-zone list under Cabinet Decision No. 59 of 2017, as amended, and the actual conditions within their location.^[1][6]

For excise tax, Cabinet Decision No. 37 of 2017, article 15, allows qualifying fenced free zones and other FTA-specified areas. Security controls, a warehouse keeper and registration through that keeper are central requirements. MNE groups should maintain separate evidence for each tax, rather than extending one zone approval across all three regimes. For distribution structures, location, import routing and customer use need to be assessed together.^[1][5][7]