Many founders assume that “free zone” is a single tax status: register in one, and the zero-tax treatment follows. On 2 October 2026 the Federal Tax Authority (FTA) published Tax Public Clarification TAXP010, “Free Zones and Designated Zones for Tax Purposes”, to correct exactly that assumption. Its message is simple: the same physical location in the UAE can have one status for Corporate Tax, another for VAT and a third for Excise Tax, and each has to be checked separately.
This guide explains what TAXP010 says, what it does not say, and what a free zone company should check now.
What TAXP010 Is (and Is Not)
TAXP010 is a public clarification, not new law. The FTA states that it “neither amends nor seeks to amend” any legislation; it explains how the existing rules have applied since the relevant laws took effect. It draws on the Excise Tax law (Decree-Law 7/2017), the VAT law (Decree-Law 8/2017), the Corporate Tax law (Decree-Law 47/2022), Cabinet Decision 100/2023 and Ministerial Decisions 84/2025 and 229/2025.
The clarification sets out four separate categories that are easy to confuse:
- Corporate Tax Free Zone: a geographic area specified by Cabinet decision for Corporate Tax purposes.
- Corporate Tax Designated Zone: a zone that is both a Free Zone under the Corporate Tax law and on the VAT list of Designated Zones.
- VAT Designated Zone: a fenced area listed by Cabinet decision that meets the conditions of Article 51(1) of the VAT Executive Regulation.
- Excise Tax Designated Zone: a fenced zone or approved area supervised by an FTA-registered Warehouse Keeper.
Corporate Tax: Free Zone Status Is Only the Starting Point
Under the UAE Corporate Tax law, a Qualifying Free Zone Person (QFZP) pays 0% on qualifying income and 9% on non-qualifying income. Being registered in a free zone does not make a company a QFZP. It must also maintain adequate substance in the zone, earn qualifying income, keep non-qualifying revenue within the de minimis limit (the lower of 5% of total revenue or AED 5 million), comply with transfer pricing rules, prepare audited financial statements, and not elect for the standard regime. We cover these conditions in detail in our guide to qualifying free zone persons.
Where TAXP010 adds something practical is distribution. Under Ministerial Decision 229/2025, “distribution of goods or materials in or from a Designated Zone” is a qualifying activity, and the goods must be imported into the country through that Designated Zone. TAXP010 confirms that “Designated Zone” here means a Corporate Tax Designated Zone, which must be on the VAT list and be a Free Zone for Corporate Tax. A VAT Designated Zone is not automatically a Corporate Tax Designated Zone.
The consequence: a distributor in a free zone that is not on the VAT list cannot rely on the distribution qualifying activity, however the zone markets itself. Failing a QFZP condition costs the 0% rate for the tax period in which it happens and the following four periods. Separately, FTA Decision No. 6 of 2026 requires distributors claiming QFZP status to obtain an agreed-upon procedures report from an independent auditor for tax periods starting on or after 1 January 2026 ‹verify issue date of Decision 6/2026›.
VAT: The Designated Zone List and Article 51
For VAT, most free zones are treated like the UAE mainland. Only zones on the Cabinet’s list of Designated Zones, and only areas meeting Article 51(1) of the VAT Executive Regulation, are treated as outside the UAE for certain supplies of goods. Article 51(1) requires:
- a specific fenced area with security measures and Customs controls on people and goods entering and leaving;
- internal procedures for keeping, storing and processing goods;
- the zone operator following FTA procedures.
Two points matter in practice. First, the special treatment covers goods, not services: services supplied in a Designated Zone are generally subject to VAT like any other domestic supply. Second, a zone being on the list is not the end of the check. TAXP010 asks businesses to confirm with their free zone authority that the specific area they operate in meets Article 51(1).
Excise Tax: A Third, Separate Test
UAE Excise Tax has its own definition. An Excise Tax Designated Zone is either a fenced free zone, entered and exited through a designated road, with security measures, customs supervision and an appointed Warehouse Keeper, or any other area the FTA designates under a Warehouse Keeper’s supervision. Status is confirmed with the free zone authority or the Warehouse Keeper. For businesses dealing in tobacco, energy drinks, sweetened drinks or similar excise goods, this is a separate question from both VAT and Corporate Tax.
What a UAE Free Zone Company Should Check Now
TAXP010 effectively asks every free zone business in the UAE to run three checks instead of one:
- Corporate Tax: confirm with your free zone authority that your zone is a Corporate Tax Free Zone, test each QFZP condition, and if you distribute goods, confirm the zone is also a Corporate Tax Designated Zone.
- VAT: check the FTA’s current list of Designated Zones and whether your premises sit inside the fenced area that meets Article 51(1). Review how you invoice services, which are not covered by Designated Zone relief.
- Excise: if relevant, confirm Excise Designated Zone status with the Warehouse Keeper.
Document the answers. The FTA expects UAE taxpayers to evidence their position, and since 1 October 2026 it also expects documented supplier checks before input VAT is recovered (FTA Decision No. 13 of 2026). If you are still choosing where to set up, our comparison of free zone vs mainland and the UAE company formation team can help you pick a zone whose tax status matches your business model, not just its brochure. For the wider Corporate Tax picture, see our note on the 9% rate for foreign companies.
Frequently Asked Questions
What is TAXP010?
A Tax Public Clarification issued by the UAE Federal Tax Authority on 2 October 2026 explaining how free zones and designated zones are defined for Corporate Tax, VAT and Excise Tax. It does not change the law.
Is every UAE free zone a Designated Zone?
No. For VAT, only zones on the Cabinet’s list that also meet Article 51(1) of the VAT Executive Regulation are Designated Zones. For Corporate Tax, a Designated Zone must be both on that VAT list and a Corporate Tax Free Zone.
Does a free zone company automatically pay 0% Corporate Tax?
No. Only a Qualifying Free Zone Person pays 0%, and only on qualifying income. Non-qualifying income is taxed at 9%, and breaching a condition removes QFZP status for five tax periods.
Are services in a VAT Designated Zone zero-rated or out of scope?
Generally not. Designated Zone treatment covers certain supplies of goods. Services supplied in a Designated Zone are normally taxed like any other domestic supply.
Who confirms my zone’s status?
Your UAE free zone authority for Corporate Tax and VAT purposes, the FTA’s published list for VAT, and the Warehouse Keeper for Excise Tax.
Sources: FTA, TAXP010 Free Zones and Designated Zones for Tax Purposes (2 October 2026); Federal Decree-Law 47/2022; Cabinet Decision 100/2023; Ministerial Decision 229/2025; FTA Decision No. 13 of 2026. Last updated: October 2026.
Disclaimer: This article is general information about UAE tax rules as of October 2026 and is not legal or tax advice. Zone status and QFZP eligibility depend on your specific facts; confirm your position with your free zone authority and a qualified adviser before acting.
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