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, all-in 2026 figures, confirmed in writing, with no sales call. See the full Cost Index or the open price dataset (CC-BY).
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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 all-in prices 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.