Free Zones in the UAE

What is a UAE free zone?

A free zone is a jurisdiction within an emirate that operates under its own free zone authority, which issues trade licences, grants visas and sets its own rules. Free zones were created to attract foreign investment by removing the historic requirement for a local Emirati partner and by offering customs and tax advantages. Each free zone is effectively semi-autonomous, so a media zone, a financial centre and an industrial park can run very different regimes even though they sit in the same country. Companies registered in a free zone are commonly called Free Zone Companies (FZ-LLC or FZE) and hold a licence tied to specific permitted activities.

Key benefits of setting up in a free zone

The headline attractions are 100% foreign ownership, 0% corporate tax on qualifying income, full repatriation of capital and profits, and no personal income tax. Free zones also offer fast, largely online incorporation, bundled visa quotas, ready-built offices and warehousing, and sector-specific ecosystems that put similar businesses in one place. Two financial free zones, DIFC and ADGM, add independent common-law courts and regulators, which is why banks, funds and fintechs cluster there. For many small firms the deciding factor is simply cost and speed: several zones issue a licence in days for a few thousand dirhams.

Free zone vs mainland

A mainland (onshore) company is licensed by the emirate's Department of Economic Development and can trade freely across the UAE and win government contracts, and since 2021 most mainland activities also allow 100% foreign ownership. A free zone company enjoys the free zone tax and ownership regime but has historically been restricted from selling directly into the UAE mainland without a local distributor or a mainland branch. The right choice depends on your customers: sell mainly to UAE consumers or the public sector and mainland often wins; export, hold assets, or serve international clients and a free zone is usually cheaper and simpler. Many groups run both, using a free zone entity alongside a mainland one.

Qualifying Free Zone Person and the 0% corporate tax rate

The 0% rate is not automatic. To be a Qualifying Free Zone Person (QFZP) a company must maintain adequate substance in the UAE, earn qualifying income, not elect to be taxed at 9%, meet transfer-pricing rules, and stay within the de minimis limit for non-qualifying revenue (the lower of AED 5 million or 5% of total revenue). Qualifying and excluded activities are set by Ministerial Decision 229 of 2025. Every condition must hold at once: breach any of them or exceed de minimis and the company loses QFZP status for that tax period and the following four periods, paying 9% on its full profit. Non-qualifying income above the threshold is taxed at 9% in the normal way.

How to choose the right free zone

Start with your activity, because each zone licenses a defined list and specialised zones (media, healthcare, commodities, aviation) can be a poor fit for an unrelated business. Then weigh location and logistics, visa requirements, whether you need physical office or warehouse space, and total first-year cost including licence, establishment card and immigration fees. Traders moving physical goods should also check whether the zone is a designated zone for customs and VAT. Budget-driven service firms often pick IFZA, Meydan, SHAMS, RAKEZ, Ajman or UAQ FTZ; regulated finance goes to DIFC or ADGM; heavy industry and logistics favour JAFZA or KEZAD.

Accounting and audit requirements in free zones

Free zone companies must keep proper accounting records and register for UAE Corporate Tax with the Federal Tax Authority. Since tax periods beginning on or after 1 January 2025, every Qualifying Free Zone Person must prepare and maintain audited financial statements regardless of revenue; the old AED 50 million audit threshold no longer exempts a smaller QFZP. Separately, MD 84 requires audited statements for any taxable person with revenue over AED 50 million. From tax periods beginning on or after 1 January 2026, free zone distributors relying on the distribution of goods in or from a designated zone must also obtain an annual Agreed-Upon-Procedures report from a UAE-licensed auditor. Missing audited accounts is itself a disqualifying condition that can strip QFZP status retrospectively, so a qualified accountant is essential.

Frequently asked questions