VERIFIED 2026 · FORMENZO
Do UAE free-zone companies pay VAT?
Yes — VAT applies to UAE free-zone companies the same as elsewhere: a 5% standard rate. Registration is mandatory once your taxable supplies exceed AED 375,000 a year, and voluntary from AED 187,500. Certain 'designated zones' have special VAT treatment for goods, but services are generally standard-rated. VAT is separate from corporate tax.
Formenzo publishes real, published scenario 2026 figures, confirmed in writing, with no sales call. See the full Cost Index or the open price dataset (CC-BY).
Build your exact price →Get a quote on WhatsApp →By the Formenzo Research Team · compare all 9 zones
How the 5% works in practice
Once registered, a free-zone company charges 5% VAT on standard-rated sales, reclaims the VAT it pays on business costs, and settles the difference with the Federal Tax Authority. Services supplied to customers outside the UAE are generally zero-rated — you still register and file, but charge 0% on those invoices. The AED 375,000 mandatory threshold is measured over a rolling twelve-month period, not the calendar year.
Who actually has to register
Registration arrives earliest for e-commerce sellers delivering to UAE customers, agencies and consultancies invoicing UAE-based clients, and traders moving goods from a designated zone into the mainland. A consultant whose clients are all overseas can cross the threshold on zero-rated income alone and still acquire a filing obligation.
Two things founders ask
Can I avoid registering if every client is abroad? Often, yes. A business making only zero-rated supplies can apply to the Federal Tax Authority for an exception from registration, which removes the filing burden for as long as it stays export-only.
Is VAT registration included in a formation package? No. The published scenarios on this site cover the licence, fees, setup and visas; VAT registration is a separate post-licence step, handled under accounting, tax and VAT, and is distinct again from corporate tax.
