Free zone or designated zone: check your status for each tax separately
A new FTA public clarification, TAXP010, says that “free zone” and “designated zone” mean different things for Corporate Tax, VAT and Excise Tax. A company has to check its status under each law on its own.
In October 2026 the FTA published public clarification TAXP010, Free Zones and Designated Zones for Tax Purposes. It brings together definitions that until now sat in three separate laws. The main point for free zone companies is that being in a free zone does not settle the company’s VAT or Excise Tax position.
What changes
- For Corporate Tax, a free zone is an area named in a Cabinet decision. A company there can become a Qualifying Free Zone Person and pay 0% on qualifying income if it meets the conditions.
- For VAT, a designated zone is a free zone on the FTA’s List of Designated Zones whose specific area also meets the conditions of Article 51(1) of the VAT Executive Regulation: a fenced area with customs controls, internal procedures for storing goods, and an operator that follows FTA procedures.
- A VAT designated zone is not automatically a designated zone for Corporate Tax. It counts for Corporate Tax only if it is both on the VAT list and a free zone for Corporate Tax.
- For Excise Tax, a designated zone is a fenced free zone under customs supervision with an FTA-registered warehouse keeper, or another area the FTA approves.
- Many well-known free zones are not on the VAT list. For VAT, a company there is treated like a mainland company.
What to do
- Find your zone on the FTA’s List of Designated Zones. If it is not there, standard VAT rules apply to you.
- If it is on the list, ask your free zone authority to confirm that the specific area where you operate meets the Article 51(1) conditions.
- Ask the same authority whether your zone is a free zone or a designated zone for Corporate Tax. This matters most if you distribute goods and rely on the 0% rate.
- If you hold excise goods, confirm with the free zone authority or the warehouse keeper that the FTA has approved the area as an excise designated zone.
What this means for you
Most service companies in free zones charge and recover VAT exactly as mainland companies do, and nothing changes for them. The difference matters for companies that store, trade or distribute goods inside a designated zone, and for Qualifying Free Zone Persons whose income comes from distribution. Our guide to free zones and designated zones explains how each tax treats them.
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This update is for reference and is not tax advice. Source: FTA public clarification TAXP010, Free Zones and Designated Zones for Tax Purposes, and the FTA’s List of Designated Zones.