You’ve heard the term ‘free zones’ in the UAE. But have you heard of ‘designated free zones’ before? And what’s the difference? There are over 40 free zones in the UAE. But not all free zones are designated free zones. Designated free zones carry a special recognition from the UAE Cabinet for Value Added Tax (VAT) purposes and stricter compliance conditions than free zones.
Supplies of goods within or between designated free zones are usually VAT-exempt, unlike ordinary free zones. These areas are also usually fenced off, have stricter customs controls, regulated storage and processing, and different rules from the Federal Tax Authority (FTA).
In this article, we’ll walk you through exactly how a designated free zone and a free zone differ, how VAT applies, and why they matter in 2025. You’ll learn about the benefits of setting up in a designated free zone, and how to choose the right one for your business. We’ll bring you a list of all the designated free zones in the UAE. And we’ll know just why you should partner with Creative Zone to launch your designated free zone business with us – confidently, on budget, and quickly.
Designated free zones in UAE
Designated free zones in the UAE have different purposes from ordinary free zones. As we’ve touched on, designated free zones are considered outside the UAE territory for VAT purposes (meaning that certain goods traded within and between designated zones are VAT-exempt). These zones are decreed so by the UAE Cabinet: only a handful of traditional free zones are designated free zones.
The criteria for designated free zones are:
- To be within a fenced geographic area
- Must have strict security measures and Customs controls for monitoring the entry and exit of individuals and goods to and from the designated free zone
- Strict internal protocols for keeping, storing, and processing goods within the designated free zone
- The designated free zone’s operator has to comply with the procedures of the Federal Tax Authority (FTA)
Ordinary free zones are a specific geographic area where companies benefit from incentives, such as full foreign ownership, tax incentives, and streamlined business regulations. These were devised to attract international investors to stimulate local trade and innovation across all industries. For instance, Dubai Internet City focuses on tech companies, such as Meta, LinkedIn, Microsoft, and hundreds of others. It has infrastructure tailored specifically for internet and tech companies. Each free zone is governed by its own authority, making regulation straightforward.
Why the difference? Designated free zones came about in 2018 when the UAE introduced VAT for the first time, and needed to differentiate between ordinary free zones and designated free zones. That’s why designated free zones are considered outside of the UAE’s VAT system.
Creative Zone’s team is highly experienced in this field. Let us simplify it for you.
VAT treatment in UAE designated free zones
VAT treatment in UAE designated free zones differs from that in ordinary free zones. There are six main ways in which VAT applies and exemptions work in designated free zones:
- Goods traded within and between designated free zones are exempt from VAT – under specific FTA conditions.
- When goods are exported from designated free zones, they are VAT-exempt.
- Goods consumed within the designated free zone (such as in production or manufacturing) are not VAT-free.
- Companies in the designated free zone must register for VAT if their turnover exceeds the FTA’s specific thresholds.
- When goods are transferred from the mainland or ordinary free zones into a designated free zone, a 5% VAT rate is applied on the goods.
- Goods transferred from designated free zones to the mainland or ordinary free zones are treated as imports – and have VAT applied via a reverse charge mechanism as decreed by the FTA.
VAT registration rules for businesses in designated free zones
VAT registration rules for businesses operating in designated free zones are twofold: voluntary registration and mandatory registration.
- Voluntary registration: This VAT registration threshold applies when taxable goods or expenses exceed AED 187,500 in a previous 12-month period or are expected to surpass this amount in that period.
- Mandatory registration: This is required if taxable supplies exceed AED 375,000 over the previous 12 months or are expected to exceed this amount within the next 30 calendar days.
Want to register your designated free zone company for VAT? Click your way to the FTA’s online portal. You’ll need to create an account, complete the VAT registration form, upload supporting paperwork, and submit it for approval. Once approved, the FTA will issue you a Tax Registration Number (TRN), making your business VAT-compliant and allowing you to submit VAT returns.
Complete list of designated free zones in the UAE
The UAE Cabinet’s Decision No. 59 stipulates the following free zones as designated free zones:
Abu Dhabi
- Free Trade Zone of Khalifa Port
- Abu Dhabi Airport Free Zone
- Khalifa Industrial Zone
- Al Ain International Airport Free Zone
- Al Butain International Airport Free Zone
Ajman
- Ajman Free Zone
Dubai
- Jebel Ali Free Zone (North-South)
- Dubai Cars and Automotive Zone (DUCAMZ)
- Dubai Textile City
- Free Zone area in Al Quoz
- Free Zone Area in Al Qusais
- Dubai Aviation City
- Dubai Airport Free Zone (DAFZA)
- International Humanitarian City – Jebel Ali
Fujairah
- Fujairah Free Zone
- Fujairah Oil Industry Zone (FOIZ)
Ras Al Khaimah
- RAK Free Trade Zone
- RAK Maritime City Free Zone
- RAK Airport Free Zone
Sharjah
- Hamriyah Free Zone
- Sharjah Airport International Free Zone
Umm Al Quwain
- Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
- Umm Al Quwain Free Trade Zone on Sheikh Mohamed Bin Zayed Road
Advantages of establishing a company in UAE designated free zones
The advantages of setting up a business in a UAE designated free zone include full property ownership, no currency controls, tax benefits, availability of a skilled workforce, and a streamlined business setup process.
1. Full ownership of property
You have 100% ownership of property in a designated free zone – no local partner or investor needed.
2. Zero currency restrictions
With a designated free zone company, you have no limitations on the currencies you can use.
3. Tax benefits
Designed free zone businesses are exempt from corporate tax for 15 – 5 years, depending on the zone and your type of business activity.
4. Skilled and diverse workforce
In designated free zones, you are allowed to hire foreign nationals and specialists.
5. Streamlined company registration and formation
Company registration in a designated free zone is simpler and faster than in ordinary free zones, thanks to streamlined regulations and processes.
How to choose the right designated free zone for your business
Choosing the right designated free zone for your business in the UAE includes considering factors such as the type of business activities allowed in a zone, location, office space conditions, and setup and licensing costs.
- Designated free zones focus on specific industries, just like ordinary free zones. Your company must align with the designated free zone’s allowed business activities.
- Location, location, location: some designated free zones are near ports, airports, and major road corridors to streamline import/export and logistics operations.
- Some designated free zones offer virtual offices or flex-desk options, while others require physical office spaces.
- Setup and licensing fees vary between designated free zones, so it is wise to do due diligence on which one best suits your business – and budget.
Frequently asked questions
Are all free zones in the UAE considered designated zones?
No – only those listed by the UAE Cabinet are officially “designated.”
Do designated free zones have special VAT exemptions?
Yes, for qualifying goods transactions, but not usually for services.
Can I own 100% of my company in a designated zone?
Yes – foreign investors can own 100% of their designated free zone businesses.
What types of businesses benefit most from designated free zones?
Import/export, trading, manufacturing, logistics, aviation, and warehousing.
Why work with Creative Zone
Business setup in a designated free zone in the UAE is a complex process. With Creative Zone on your team, we’ll help you get set up in the right designated free zone. You’ll receive expert guidance on choosing the best designated free zone for your business activity, assist with licensing, VAT registration, visa applications – and the hundreds of little things that involve business setup in the UAE. And our local insights streamlines navigating regulatory and compliance challenges.
Creative has expertly guided over 75,000 businesses since 2010. For business setup in Dubai, work with a team that understands both the bigger picture and the fine print of UAE VAT law. Contact Creative Zone today to get you started.
