Are all Free Zones Designated Zones in the UAE?

Introduction

Not all free zones are designated zones in the UAE.

A free zone in the United Arab Emirates (UAE) is a specific area designated by the government to attract foreign investment, promote economic growth, and encourage business activities. These free zones offer numerous benefits and incentives to businesses, including:

• 100% foreign ownership: Foreign investors can fully own their businesses without a local partner. This requirement was largely removed from mainland setups in Dubai and Abu Dhabi in 2021.
• Tax exemptions: Free zone entities are often exempt from corporate and personal income taxes for a specified period.
• Customs duty exemptions: Goods imported into free zones are generally exempt from customs duties.
• Simplified administrative procedures: Streamlined licensing, permits, and reduced bureaucracy.
• Modern infrastructure: Flexible office space, warehouses, and industry-specific facilities.
• Strategic locations: Proximity to ports, airports, and transport hubs.
• Access to skilled labor: International talent pools and recruitment support.

How many Free Zones does the UAE have?

The UAE has more than 40 free zones across its emirates. The exact number varies as zones are created, merged, or rebranded. Official data is available via UAE government sources.

Notable examples include Dubai Multi Commodities Centre (DMCC), Jebel Ali Free Zone (JAFZA), Dubai Airport Free Zone (DAFZA), Abu Dhabi Global Market (ADGM), Dubai Internet City (DIC), Ras Al Khaimah Economic Zone (RAKEZ), IFZA and SHAMS.

Each free zone may focus on specific industries such as finance, logistics, technology, media, or manufacturing, while others adopt a multi-sector approach.

Which Dubai Free Zone is Best?

The optimal free zone depends on licence activity, regulatory oversight, and client location.

Common options include:

What is the Difference between a Designated Zone and a Free Zone?

A free zone is a special economic area designed for company formation and foreign ownership benefits. A designated zone is a VAT-specific concept.

For VAT purposes, certain fenced zones that meet strict criteria are treated as outside the UAE VAT territory. Not every free zone qualifies as a designated zone.

Designated zones are listed under Cabinet Decisions issued pursuant to UAE VAT legislation.

The law states that designated zones meeting specific conditions are treated as outside the UAE for VAT purposes.

These conditions include:

1. The zone must be a clearly defined and fenced geographic area.
2. Security and customs controls must monitor movement of goods and people.
3. Internal procedures for storage and processing of goods must be in place.
4. The zone operator must comply with Federal Tax Authority requirements.

The distinction between free zones and designated zones emerged with the introduction of VAT in the UAE in January 2018.

Only designated zones benefit from specific VAT treatment, subject to compliance with regulatory conditions.

What Free Zones Qualify as Designated Zones in the UAE?

Dubai: JAFZA, DUCAMZ, Dubai Textile City, Al Quoz, Al Qusais, Dubai Aviation City, DAFZA, International Humanitarian City.

Sharjah: Hamriyah Free Zone, Sharjah Airport International Free Zone.

Ajman: Ajman Free Zone.

Umm Al Quwain: UAQ Free Trade Zone at Ahmed Bin Rashid Port and on Sheikh Mohammed Bin Zayed Road.

Ras Al Khaimah: RAKEZ, RAK Airport Free Zone, RAK Maritime City Free Zone.

Fujairah: Fujairah Free Zone, FOIZ.

Abu Dhabi: Khalifa Port Free Trade Zone, Abu Dhabi Airport Free Zone, Khalifa Industrial Zone, Al Ain International Airport Free Zone, Al Bateen Airport Free Zone.

Designated zones primarily support trading activities, whereas services rendered within the UAE remain subject to VAT.

This publication addresses core conceptual differences. Detailed tax applications fall outside its scope.

Frequently Asked Questions

What are designated zones in the UAE?

Designated zones are areas authorised by UAE authorities where specific regulatory or VAT rules apply.

Why are designated zones important for businesses?

They provide tailored regulatory treatment and operational frameworks for specific business activities.

How does a designated zone differ from a free zone?

All designated zones are not free zones; designation primarily affects VAT treatment rather than company ownership.

Can companies choose to operate in a designated zone?

Yes, provided their activities comply with the zone’s regulatory requirements.

Do designated zones affect legal jurisdiction?

They operate under UAE law but may apply zone-specific regulations alongside federal legislation.