The FTA’s latest clarification explains why a business’s zone status must be checked separately for Corporate Tax, VAT and Excise Tax.
Businesses operating in UAE free zones may assume that their location carries the same tax status across all three tax regimes. The Federal Tax Authority’s Public Clarification TAXP010, issued on 2 October 2026, addresses this assumption and explains how Free Zones and Designated Zones are treated under the different tax laws.
The distinction matters because the rules governing Corporate Tax benefits are not the same as those governing VAT treatment of goods or the suspension of Excise Tax. A location that qualifies under one regime does not automatically qualify under another.
A Free Zone for Corporate Tax is not necessarily a Designated Zone
Under the UAE Corporate Tax regime, a business established in a Free Zone may qualify for the 0% rate on qualifying income if it meets the conditions applicable to a Qualifying Free Zone Person (QFZP). Free Zone status alone, however, does not guarantee the benefit.
The distinction becomes particularly important for businesses involved in the distribution of goods. To benefit from the qualifying distribution activity, the relevant requirements include operating in or from a Designated Zone for Corporate Tax purposes. The location must satisfy the applicable Corporate Tax criteria; being recognised as a VAT Designated Zone is not sufficient on its own.
Businesses should therefore review both their QFZP status and the specific conditions applicable to their income, rather than relying solely on their trade licence or the name of the zone in which they operate.
VAT Designated Zones have a different purpose
For VAT purposes, only specifically listed Designated Zones receive the special treatment provided under the VAT legislation. Even then, the treatment is conditional.
Certain supplies of goods within a VAT Designated Zone may be treated as taking place outside the UAE for VAT purposes, subject to the applicable requirements. This does not mean that all transactions conducted by a business in that zone are outside the scope of VAT.
Services supplied in a Designated Zone generally remain subject to the normal UAE VAT rules. The treatment of goods also depends on the transaction, how the goods move, their use and the supporting evidence available.
For businesses trading, storing or distributing goods, this distinction can affect how transactions are assessed and documented. A business should not apply special VAT treatment simply because its premises are located in a free zone.
Excise Tax has its own Designated Zone requirements
Excise Tax follows a separate framework. The relevant conditions include controls over the movement of people and excise goods, customs supervision where applicable, and the appointment of an FTA-registered Warehouse Keeper.
The requirements are not interchangeable with those applying under VAT or Corporate Tax. Businesses holding or moving excise goods should confirm that their premises and arrangements satisfy the specific conditions under the Excise Tax rules before relying on any tax suspension treatment.
What should businesses review?
TAXP010 does not introduce a single new tax exemption or benefit. It clarifies how the existing rules distinguish between zones across the three tax regimes. For businesses, the practical step is to verify that their tax treatment is supported by the correct classification and the relevant conditions.
A review should cover:
- Corporate Tax: Confirm the business’s Free Zone and QFZP position, including whether any income relies on the qualifying distribution activity.
- VAT: Verify whether the specific location qualifies as a VAT Designated Zone and whether the treatment applied to goods and services is appropriate.
- Excise Tax: Check the applicable zone requirements, customs controls and Warehouse Keeper arrangements where relevant.
- Records: Retain confirmation of the location’s status and supporting documents for the transactions and tax positions claimed.
Businesses with warehouses, multiple premises or activities spanning more than one zone should pay particular attention to the exact location involved. A company’s registered address alone may not establish that every warehouse or operating area meets the conditions required for a particular tax treatment.
The importance of checking the right status
The FTA’s clarification reinforces an important point: tax treatment depends on the relevant legislation and the facts of the business, not simply on whether it operates from a UAE free zone.
Reviewing zone classification alongside the business’s actual activities can help identify whether Corporate Tax benefits, VAT treatment or Excise Tax arrangements are being applied on the correct basis.
E Craft Global supports UAE businesses with Corporate Tax and VAT compliance, tax reviews and accounting documentation to help ensure that their tax positions are assessed against the requirements that apply to their operations.