In today’s business climate, especially in the UAE, every advantage counts. One strategic area many companies overlook is how Designated Free Zones under the UAE VAT law can offer significant cost savings as long as you know exactly how they work. In this post, you’ll gain a crystal-clear understanding of what Designated Zones are, why they matter, which zones are covered, and how businesses can leverage them effectively.
What Are Designated Free Zones?
A Designated Free Zone is a free zone specifically identified by the UAE government via a Cabinet Decision, under Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT). Not all free zones qualify only those that meet certain conditions and are formally designated. Federal Decree-Law No. (8) of 2017
Key features:
- For goods, supplies to, from, or within such designated zones may be treated as being outside the UAE for VAT purposes (if specific criteria are met). That means certain transactions don’t attract VAT.
- For services, the usual UAE VAT rules apply. Even inside a designated zone, service supplies are taxable at the standard rate (unless specifically zero-rated or exempt under other provisions). VAT Guide | Designated Zones | VATGDZ1 2018
Why They Matter for Businesses
If you run or plan to set up a business in the UAE, understanding Designated Zones can give you competitive advantages:
- VAT savings
Moving goods between designated zones, or importing goods into them from outside the UAE, can avoid VAT if conditions are met. This reduces input/output VAT liabilities.Federal Decree-Law No. (8) of 2017 on Value-Added Tax (VAT) - Supply chain optimisation
Logistics, warehousing, export/import businesses can use designated zones to reduce cost, simplify customs & documentation, and keep operations efficient. - Better cash flow
Because VAT may not be immediately charged on certain goods movements (inside or between designated zones), you get better liquidity, as you avoid paying VAT upfront in some cases. - Regulatory clarity
Knowing whether your free zone is “designated” helps avoid legal or tax risk. Mis-applying VAT rules or omitting to register when required can lead to penalties.
What Conditions Must Be Met?
Designated Free Zones are not “special” automatically. To enjoy the VAT-related benefits, both the zone and your business operations must satisfy several legal and operational criteria:
- The zone must be fenced or have borders/customs controls to monitor entry/exit of goods or individuals. VAT Guide | Designated Zones | VATGDZ1 2018
- There must be security, customs, and procedures in place for goods movement.
- The business must maintain proper record keeping, documentation, prove the goods are not consumed (or lost) inside the zone, and follow import/export rules.
- Even in designated zones, VAT registration may still be required if your taxable supplies exceed the threshold. Being in a designated zone doesn’t exempt you from other VAT obligations.
List of Key UAE Designated Free Zones (as of 2025)
Below are some of the officially designated zones under UAE VAT law (Federal Decree Law No. 8 of 2017, and subsequent Cabinet Decisions) List of Designated Zones List of Designated Zones
Abu Dhabi
| Designated Zones | To | Effective From | المناطق المحددة |
| Free Trade Zone of Khalifa Port | 01/01/2018 | المنطقة التجارة الحرة لميناء خليفة | |
| Abu Dhabi Airport Free Zone | 01/01/2018 | المنطقة الحرة بمطار أبوظبي | |
| Khalifa Industrial Zone | 01/01/2018 | منطقة خليفة الصناعية | |
| Al Ain International Airport Free Zone | 18/06/2018 | المنطقة الحرة بمطار العيــن الدولــي | |
| Al Butain International Airport Free Zone | 18/06/2018 | المنطقة الحرة بمطار البطين الدولــي |
Dubai
| Designated Zones | To | Effective From | المناطق المحددة |
| Jebel Ali Free Zone (North-South) | 01/01/2018 | المنطقة الحرة لجبل علــي (شمال – جنوب) | |
| Dubai Cars and Automotive Zone (DUCAMZ) | 01/01/2018 | منطقة العوير الحرة للسيارات دوكامز | |
| Dubai Textile City | 04/04/2021 | 01/01/2018 | مدينة دبي للأقمشة |
| Free Zone Area in Al Quoz | 01/07/2021 | 01/01/2018 | المنطقة الحرة فــي منطقة القوز الصناعيــة |
| DAFZA Industrial Park Free Zone – Al Qusais | 01/01/2018 | منطقة القصيص الصناعية دوفزا | |
| Dubai Aviation City | 01/01/2018 | مدينة دبي للطيران | |
| Dubai Airport Free Zone | 01/01/2018 | المنطقة الحرة فى مطار دبي الدولــي | |
| International Humanitarian City – Jebel Ali | 18/06/2018 | المدينة العالمية للخدمات الإنسانية – جبل علي | |
| Dubai CommerCity | 01/01/2021 | دبي كومبــرسيتي |
Sharjah
| Designated Zones | To | Effective From | المناطق المحددة |
| Hamriyah Free Zone | 01/01/2018 | المنطقة الحرة الحمرية | |
| Sharjah Airport International Free Zone | 01/01/2018 | المنطقة الحرة فى مطار الشارقة |
Ajman
| Designated Zones | To | Effective From | المناطق المحددة |
| Ajman Free Zone | 01/01/2018 | منطقة عجمان الحرة |
Umm Al Quwain
| Designated Zones | To | Effective From | المناطق المحددة |
| UAQ Free Trade Zone – Ahmed Bin Rashid Port | 01/01/2018 | منطقة التجارة الحرة بأم القيوين فى ميناء احمد بن راشد | |
| UAQ Free Trade Zone – Sheikh Mohammed Bin Zayed Road | 01/01/2018 | منطقة التجارة الحرة بأم القيوين – علــى شارع الشيخ محمد بن زايد |
Ras Al Khaimah
| Designated Zones | To | Effective From | المناطق المحددة |
| RAK Port Free Zone | 01/01/2018 | المنطقة الحرة ميناء رأس الخيمة | |
| RAK Maritime City Free Zone | 01/01/2018 | المنطقة الحرة مدينة رأس الخيمة الملاحية | |
| RAK Airport Free Zone | 04/07/2019 | 01/01/2018 | المنطقة الحرة بمطار رأس الخيمة |
| Al Hamra Industrial Zone –Free Zone | 04/07/2019 | منطقة الحمرا الصناعية – منطقة حرة | |
| Al Ghail Industrial Zone – Free Zone | 04/07/2019 | منطقة الغيل الصناعية – منطقة حرة | |
| Al Hulaila Industrial Zone – Free Zone | 01/01/2018 | منطقة الحليلة الصناعية – منطقة حرة |
Fujairah
| Designated Zones | To | Effective From | المناطق المحددة |
| Fujairah Free Zone | 01/01/2018 | منطقة الفجيرة الحرة | |
| Fujairah Oil Industry Zone (FOIZ) | 01/01/2018 | منطقة فويز |
How to Maximize Benefits: Strategic Tips
- Plan your supply chain carefully. If goods are staying within a designated zone or being transferred between multiple designated zones, it may reduce or avoid VAT. But if goods are moved to the UAE mainland or consumed there, VAT will apply.
- Maintain excellent records. You’ll need to show customs documentation, where goods have been, whether they were “consumed” or “lost” in the zone, so you qualify under the rules.
- Check whether your business must register for VAT. Even inside designated zones, if your taxable supplies (including those into the mainland) exceed the legal threshold, you must register.
- Seek updated official references. Cabinet Decisions can be amended, so always check the latest version from the Federal Tax Authority or government sources.
Possible Challenges & Pitfalls
- Misinterpretation: Thinking all “free zones” are “designated zones” can lead to wrong VAT treatment. Only those zones listed officially are designated. VAT Guide | Designated Zones | VATGDZ1 2018
- Incorrect supply classification: Goods vs services has a major difference in how VAT applies.
- Consumption within the zone: If goods are used, consumed, or lost within the zone, VAT obligations may arise.
Conclusion
For a company like The Capital Zone, working within the UAE, mastering the rules around Designated Free Zones can mean substantial tax and cost advantages but only if you fully understand the law, stay compliant, and structure your operations intelligently.
If you’re evaluating expansion, setting up operations in one of the designated zones listed above, or adjusting your supply chain, make sure you consult with tax experts who can map your specific case.
