UAE Federal Tax Authority Issues Clarification on Free Zone and Designated Zone Status

The UAE Federal Tax Authority (FTA) issued Tax Public Clarification TAXP010 detailing how companies must evaluate their locations under the UAE's Corporate Tax, Value Added Tax (VAT), and Excise Tax laws. The document emphasizes that definitions of Free Zones and Designated Zones vary significantly across each tax regime, requiring independent assessments under four categories: Corporate Tax Free Zone, Corporate Tax Designated Zone, Excise Tax Designated Zone, and VAT Designated Zone.

Under the Corporate Tax Law, a Corporate Tax Free Zone is a designated geographic area specified by Cabinet decision. To be recognized as a Corporate Tax Designated Zone, a location must appear on the VAT Designated Zone list while also holding recognition as a Free Zone under Corporate Tax regulations. The FTA confirmed that being a VAT Designated Zone does not automatically confer Corporate Tax Designated Zone status. Qualifying Free Zone Persons (QFZPs) eligible for a 0% tax rate on qualifying income must satisfy Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025. Additionally, the distribution of goods qualifies as a qualifying activity only if carried out in or from a Corporate Tax Designated Zone, with non-compliance triggering a disqualification penalty spanning the affected tax period plus four subsequent periods.

For Excise Tax, a Designated Zone must be a fenced area or approved geographic space overseen by an approved Warehouse Keeper, subject to customs supervision and strict entry-exit security. Similarly, VAT Designated Zones require specific fenced boundaries, customs controls, internal storage procedures, and compliance with FTA standards to treat intra-zone supplies as occurring outside the UAE.

The FTA outlined four procedural steps for businesses: confirm classifications separately across each tax law with the relevant Free Zone Authority; check the official List of Designated Zones on the FTA website; verify active FTA approval with the Warehouse Keeper or authority for excise goods; and ensure corporate tax distribution operations occur strictly within or from a Corporate Tax Designated Zone.