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Iakov Kukushkin
Copywriter, Journalist
Jul 25, 2025
Many people think that if you set up a business in a Free Zone in the UAE, it's all good. No taxes, no accounting hassle, and so on. And yes, this is partially true, but businesses in those zones still have to register for Corporate Tax and all that stuff. Same with Value Added Tax (VAT). This article will cover all the times when your business needs to register for VAT in those Free Zones, any exceptions, and other pitfalls.
- What is VAT?
- What are Free Zones?
- What are Designated Zones?
- VAT rules in Designated Zones
- So, do Free Zone companies need VAT registration?
- Documents required for VAT registration in the UAE
- Step-by-Step: How to register for VAT in a Free Zone
- Quick Summary: VAT in Free Zones and Designated Zones
- Why does VAT registration matter?
What is VAT?
VAT is a 5% tax added to the price of most goods and services sold in the UAE. It was introduced on January 1, 2018, and is managed by the Federal Tax Authority (FTA). Businesses collect VAT from customers and pay it to the UAE government. Here are the key things you should know about this tax:
- Businesses must still register for VAT if their annual turnover exceeds AED 375,000.
- Companies with an annual turnover exceeding AED 187,500 can choose to register for VAT.
What are Free Zones?
In the UAE, there are special zones where businesses can operate for up to 50 years without paying taxes, as long as they meet certain criteria. They offer many advantages for business, and one of the most important is that there are no import and export duties for some business types.
VAT in Free Zones
Here are a few key things you should know about VAT in Free Zones:
- Transactions within the same Free Zone attract a 5% tax.
- VAT is applied to transactions between different Free Zones.
- You must collect VAT for sales to businesses in the mainland UAE.
- VAT is not charged on international operations.
What are Designated Zones?
Some Free Zones are officially labelled as Designated Zones by the UAE government. They have special rules for VAT, especially for goods.
- These are fenced, secure areas. There is strict control over goods moving in and out.
- They are listed by the UAE Cabinet and published by the FTA.
VAT rules in Designated Zones
⚠️ Important:
Being in a Designated Zone doesn't automatically mean you're exempt from VAT registration. It all depends on how much revenue you make, who your customers are, and what type of business you're in.
Being in a Designated Zone doesn't automatically mean you're exempt from VAT registration. It all depends on how much revenue you make, who your customers are, and what type of business you're in.
Now, let's take a look at the specific rules regarding when a company in a Free or Designated Zones must register for VAT.
So, do Free Zone companies need VAT registration?
Yes — if your Free Zone company meets any of the following conditions, you must register for VAT:
- ✅ Your taxable turnover is more than AED 375,000 per yearMandatory registration.
- ✅ You sell goods or services to the Mainland or outside UAEVAT applies if you conduct business activities with clients in the UAE Mainland or internationally.
- ✅ You are in a Designated Zone but sell to the mainlandAlthough Designated Zones have special rules, VAT still applies when selling goods or services to the UAE Mainland.
- ✅ You want to recover VAT on business expensesYou can choose to register and reclaim input VAT. In this case, the threshold is AED 187,500.
Documents required for VAT registration in the UAE
To apply for VAT registration, you will require the following documents. Ensure that your documents are clear and up to date:
- Trade License
- Emirates ID and passport copy of the owner/partners
- Memorandum of Association (MoA)
- Bank account details
- Proof of business activity, such as invoices and contracts
- Estimated revenue and business turnover
We can help you with all the paperwork and even register you for VAT, saving you a lot of time. Why not give it a try?
Step-by-Step: How to register for VAT in a Free Zone
With us, you get your VAT registration headache-free in just a few simple steps
-
We’ll schedule a call
Our consultants will find out about your enquiry and about your business and help you decide if it's worth registering for VAT. If needed, they can take it from there. -
Prepare your documents and fill the registration forms
We can help you gather all the documents you need and fill in the VAT registration forms. -
Receive your TRN
We will obtain your Tax Registration Number (TRN) for you; you will need it for registration later. If you want to know more, we have an in-depth article on it. This usually takes 5–20 business days. -
Complete the registration process to start collecting and filing VAT
That's it! We are finalising your registration, so you don't need to worry about it anymore. We will advise you on the next steps for VAT collection.- Charge 5% VAT on taxable goods/services
- File VAT returns every 3 months
- Keep detailed records and invoices
Quick Summary: VAT in Free Zones and Designated Zones
As you can see, free zone companies still need to register for VAT. To make it clearer, here's a table showing when you need to do it.
Why does VAT registration matter?
Failing to register for VAT, or doing so incorrectly, could result in serious penalties:
- Late VAT registration – AED 10,000
- Failure to file VAT returns – The fine is AED 1,000 for the first offence and AED 2,000 for subsequent offences.
- Late VAT payment – 2% penalty on unpaid tax immediately after the due date, + 4% monthly penalty will be applied from one month after the due date.
- Incorrect VAT filing – AED 1,000 for the first offence and AED 2,000 for each subsequent offence.
Follow these simple tips to avoid it:
- Just because your company is in a Free Zone or Designated Zone doesn't mean you're exempt from VAT.
- Even in Designated Zones, services are almost always taxable.
- If you’re unsure about your obligations, seek advice from a VAT expert. Incorrect registration or late returns may result in fines.
We're here to help with that. It's not just about VAT registration, it's about other business and tax stuff in the UAE too. Why don't you give us a call and let us know how we can help?
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