UAE Free Zone Tax Rules: FTA Clarifies Designated Zones in TAXP010

Published 8 October 2026 | UAE tax and free zone compliance

The UAE Federal Tax Authority (FTA) issued Public Clarification TAXP010 on 2 October 2026, explaining how the terms “Free Zone” and “Designated Zone” differ for corporate tax, value added tax (VAT) and excise tax. This is a clarification of the existing framework, not a new blanket tax exemption or a change to the tax rates.

What does TAXP010 clarify?

A company’s free zone licence does not automatically establish the same tax status under all three tax regimes. Each has its own definitions and conditions:

• Corporate tax: a Corporate Tax Free Zone must meet the legal geographic definition. A Corporate Tax Designated Zone must also qualify under the relevant VAT designated-zone list. A VAT Designated Zone is not automatically a Corporate Tax Designated Zone.
• VAT: a Designated Zone must be listed under the applicable Cabinet decisions and satisfy the conditions of Article 51(1) of the VAT Executive Regulation. This is not a blanket VAT exemption for every transaction.
• Excise tax: designated-zone status depends on separate controls, including security, customs supervision and, where applicable, warehouse-keeper approval.

Why this matters for free zone businesses

For a Qualifying Free Zone Person, the 0% corporate tax rate applies only to Qualifying Income and only if all statutory conditions are met. TAXP010 highlights a particularly important distinction for distributors: distribution of goods or materials must take place in or from a Corporate Tax Designated Zone to fall within that qualifying activity, alongside the other conditions.

What founders and finance teams should do

1. Confirm the exact location and applicable status with your free zone authority; do not rely on the trade licence name alone.
2. Review corporate tax qualification, qualifying activities, revenue streams and the separate VAT treatment of goods and services.
3. For trading and distribution businesses, check warehouse and operational arrangements, transaction records and supporting documentation.
4. Seek case-specific advice before assuming the 0% rate or designated-zone VAT treatment applies.

Explore TTM’s Free Zone Company Setup and Corporate Tax & VAT Support services.

Official source: FTA — Free Zones and Designated Zones for Tax Purposes (TAXP010), issued 2 October 2026.

Need help assessing your free zone tax position or planning your UAE company structure? Book a consultation with TTM Corporate or message us on WhatsApp.

This article is general information, not individual tax or legal advice.