Free zone company: what it means for UAE businesses.

What free zone company means

Also called: FZE, FZCO, FZ LLC.

A free zone company is a legal entity incorporated and licensed by one of the UAE's free zone authorities, such as DMCC in Dubai, rather than by an emirate economic department. Common forms are the Free Zone Establishment (FZE), the Free Zone Company (FZ Co) and the FZ LLC, and each zone decides which forms it registers. Zone regulations govern the company, and the Commercial Companies Law applies only where the zone's own rules say nothing on the point.

Free zones offer full foreign ownership and customs advantages on goods held in the zone for re-export. Access to the mainland market is regulated: a free zone company generally sells to mainland customers through a licensed mainland distributor, or opens a mainland branch where its zone allows.

For tax, a free zone company is both a Resident Person and a Free Zone Person. It pays 0% only on Qualifying Income, and only while it meets every Qualifying Free Zone Person condition, including audited financial statements. Otherwise it is taxed like a mainland company. VAT applies in free zones in the same way as on the mainland, except for certain goods in designated zones.

How it works

• The free zone authority issues the licence and keeps the company register. Commercial free zones apply the beneficial owner rules in Cabinet Decision No. 109 of 2023; financial free zones have their own regimes.
• Article 5 of the Commercial Companies Law, as replaced in 2025, lets a free zone company open a branch or representative office outside the zone where its zone's legislation allows, and that branch is subject to the federal law.
• Article 15 bis, added in 2025, lets a company move its registration between a free zone and a mainland authority while keeping its legal personality, with the approval of both authorities.
• It must apply for Corporate Tax registration within three months of incorporation, like any other resident company.
• Income of a mainland branch is Domestic Permanent Establishment income, which is not Qualifying Income and is taxed at 9%.
• A Qualifying Free Zone Person must prepare audited financial statements (Ministerial Decision No. 82 of 2023).

Worked example

A free zone trading company that meets the Qualifying Free Zone Person conditions opens a mainland branch to sell to local retailers. The branch earns taxable income of AED 300,000.

Qualifying Income earned from the free zone	AED 1,500,000
Corporate Tax on Qualifying Income at 0%	AED 0
Taxable income of the mainland branch	AED 300,000
Corporate Tax on branch income at 9%	AED 27,000
Total Corporate Tax for the year	AED 27,000

Branch income is not Qualifying Income and a Qualifying Free Zone Person gets no AED 375,000 zero band, so the branch is taxed from the first dirham.

Common mistakes

• Invoicing mainland customers directly outside the zone's permitted activities and assuming the income still qualifies for 0%.
• Treating the free zone as outside the VAT system. Only designated zones have special treatment, and only for certain supplies of goods.
• Missing the audited financial statements requirement, which can cost the company its 0% regime.

The law

• Federal Decree-Law No. 20 of 2025 amending Federal Decree-Law No. 32 of 2021 on Commercial Companies, Article 1 (replacing Articles 3 and 5) and Article 2 (new Article 15 bis on transfer of registration), Arabic text
• Federal Decree-Law No. 47 of 2022, as amended, Article 1 (Free Zone Person), Article 3, Clause 2 and Article 11, Clause 3
• Cabinet Decision No. 100 of 2023 on Determining Qualifying Income, Article 1 (Domestic Permanent Establishment) and Article 3
• Ministerial Decision No. 82 of 2023 on audited financial statements, Article 2

Frequently asked questions

Can a free zone company move to the mainland?

Yes. Article 15 bis of the Commercial Companies Law, added in 2025, allows a company to transfer its registration between a free zone and a mainland authority by special resolution or absolute majority of partners, keeping its legal personality, with the approval of both authorities.

Does a free zone company need to register for VAT?

Yes, on the same thresholds as any other business. Being in a free zone does not change VAT registration; only certain supplies of goods within designated zones are treated as outside the UAE.

Related terms

Qualifying Free Zone Person · Qualifying Income · Designated zone · Mainland company · Branch of a foreign company. See every term in the UAE tax glossary.

For the full picture, read our guide: Qualifying Free Zone Persons: How the 0% Corporate Tax Rate Really Works.

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