UAE Clarifies Different Free Zone and Designated Zone Definitions Across VAT, Excise and Corporate Tax

• The UAE Federal Tax Authority has confirmed that the definitions of a Free Zone and a Designated Zone differ across VAT, Excise Tax and Corporate Tax and cannot be used interchangeably.
• For VAT purposes, a Designated Zone must be included in the statutory list and satisfy the conditions in the VAT Executive Regulation before obtaining the special territorial treatment applicable to certain supplies of goods.
• Businesses operating in UAE zones should determine their status separately for each tax and ensure that their contracts, invoicing, customs records and ERP configurations reflect the correct classification.

Extended article

On 2 October 2026, the UAE Federal Tax Authority issued Tax Public Clarification TAXP010, explaining how Free Zones and Designated Zones are defined for Corporate Tax, Excise Tax and Value Added Tax purposes.

The clarification confirms that the three definitions should not be treated as interchangeable. A zone may qualify as a Free Zone for Corporate Tax purposes without qualifying as a Designated Zone for VAT or Excise Tax. Businesses must therefore determine the status of a zone separately under each tax regime.

VAT Designated Zones

For VAT purposes, a Designated Zone must:

• appear in the list of Designated Zones established under Cabinet Decision No. 59 of 2017; and
• satisfy the conditions in Article 51(1) of the UAE VAT Executive Regulation.

Meeting the statutory conditions is essential. Inclusion in the list alone does not necessarily mean that the special VAT treatment applies if the operational requirements are no longer satisfied.

A qualifying Designated Zone may be treated as outside the UAE for certain supplies and movements of goods. This treatment is not comprehensive. A Designated Zone is not treated as a foreign jurisdiction for all VAT purposes, and supplies of services generally remain subject to the ordinary UAE VAT rules.

Businesses must therefore analyse the individual transaction, including:

• the nature of the goods;
• where the goods are located when supplied;
• whether the goods are consumed within the zone;
• whether they are moved between Designated Zones;
• whether they enter mainland UAE;
• whether the transaction includes services; and
• which party owns the goods during each movement.

Goods moved from a Designated Zone into mainland UAE may become subject to import VAT. Appropriate customs and stock records will consequently be required to establish the movement and status of the goods.

Excise Tax Designated Zones

For Excise Tax, a Designated Zone is generally a fenced free zone that has appropriate security measures, customs supervision and an appointed Warehouse Keeper. Another area may qualify where the FTA approves it following an application by the Warehouse Keeper.

The Excise Tax definition is operational and control-based. It should not be inferred from the zone’s treatment under VAT or Corporate Tax.

Corporate Tax treatment

A Corporate Tax Free Zone is a geographic area specified as a Free Zone in a Cabinet decision. A Corporate Tax Designated Zone is a narrower concept because the area must be both:

• a Free Zone under the Corporate Tax legislation; and
• a Designated Zone under the VAT legislation.

The clarification identifies the Jebel Ali Free Zone, Dubai Airport Free Zone and Khalifa Industrial Zone Abu Dhabi as Corporate Tax Designated Zones. By contrast, the Abu Dhabi Global Market, Dubai International Financial Centre and Dubai Multi Commodities Centre are Corporate Tax Free Zones but are not VAT Designated Zones.

The distinction is particularly relevant to Qualifying Free Zone Persons carrying out qualifying distribution activities. The applicable Corporate Tax conditions may require such activity to be conducted in or from a Corporate Tax Designated Zone and for imported goods to enter the UAE through that zone.