What is a free zone in the UAE, and how does it work?

What a free zone is, in plain terms

A free zone is a defined area inside an emirate with its own licensing authority and its own rules. The UAE's corporate tax law describes it as a designated and defined geographic area specified in a Cabinet decision. In practice, the zone authority registers your company, issues its license, provides premises and handles your staff's work permits and residence visas.

The UAE government portal calls free zones one-stop business hubs and lists them in all seven emirates, with a link to each authority.

The legal basis: emirate law, zone rules and federal law

Apart from financial free zones, each free zone is set up under its emirate's legislation and run by its own authority. In Dubai, for example, Law No. 3 of 2020 gives the DMCC Authority its own legal personality and the power to license companies in the zone. The Ministry of Economy and Tourism says entities in free zones are subject to the laws and regulations of their free zone authority.

As issued, Article 5 of Federal Decree-Law No. 32 of 2021 on Commercial Companies says the law doesn't apply to free zone companies if the zone's laws or regulations contain a special provision to that effect, but it does apply if those rules let them operate outside the zone in the UAE. Federal Decree-Law No. 20 of 2025 extended the law to free zone companies' mainland branches and representative offices, allowed a registration to move between a free zone and the mainland without liquidation, and confirmed that free zone companies hold UAE nationality.

Financial free zones are a separate category. Under Federal Law No. 8 of 2004 they're created by federal decree and are exempt from federal civil and commercial laws, while other federal laws, including the anti-money laundering law, still apply.

What a free zone company can and can't do

Direct mainland sales are generally not permitted without mainland licenses or approvals, says u.ae. In Dubai, Executive Council Resolution No. 11 of 2025 lets DET issue a free zone company a branch license, valid for one year and renewable, or a temporary permit of up to six months for listed activities. Since October 2025, eligible companies holding a Dubai Unified License can also apply for a Free Zone Mainland Operating Permit, at AED 5,000 for six months at the time of writing, and Dubai Media Office says related mainland revenue is subject to 9% corporate tax. For a Qualifying Free Zone Person, this revenue also counts toward the de minimis limit; ask your tax agent before applying.

Corporate tax and VAT in a free zone

A free zone isn't tax-free by default. The Federal Tax Authority (FTA) says all free zone entities must register and file a corporate tax return, whether or not they qualify for the free zone regime. A Qualifying Free Zone Person pays 0% on qualifying income and 9% on taxable income that isn't qualifying. The FTA lists four core conditions, and Article 18 lets the Minister add others, such as a de minimis limit on non-qualifying revenue and audited accounts:

• Keep adequate substance in the UAE.
• Earn qualifying income.
• Comply with the transfer pricing rules.
• Not elect to be taxed under the standard corporate tax regime.

Under Article 18 of the corporate tax law, a company that fails a condition during a tax period loses the status from the start of that period; the FTA's guide also sets out how long status is lost for, so ask your tax agent. For VAT, the AED 375,000 mandatory registration threshold applies in free zones as it does on the mainland. We don't give tax advice; we prepare your corporate tax registration, and your tax agent confirms whether your income qualifies.

Free zone vs mainland vs offshore

If most of your customers are in the UAE outside the zone, compare the mainland routes first. We set out where each structure can trade, its visas and its running costs in mainland vs free zone vs offshore.

How to set up in a free zone

• 1. Confirm your activity is on the zone's own activity list.
• 2. Choose a legal form the zone registers, such as an FZE or FZ Co.
• 3. Pick premises and a package for the visas you plan; u.ae says the quota depends on factors such as your package.
• 4. Apply to the zone authority with the documents it lists for shareholders and managers.
• 5. Receive your license. u.ae says it's issued within 14 working days after review and approval.
• 6. Register for corporate tax with the FTA by its deadline, and apply for work permits and residence visas through the zone.

To compare zones on cost, visas and premises, read how to choose the best free zone for your startup. Global Sky PRO prepares and submits your setup application to the zone authority and follows it up; the authority makes the decision. See free zone company formation.