The UAE Designated Zones have become a top choice for global companies looking for tax efficiency and smoother trade. With 0% corporate tax (if the business meets qualifying income criteria) and 0% VAT on specific transactions, these zones give businesses a clear edge. But not every company qualifies. The right structure and activity matter most.
What Are UAE Designated Zones?
UAE Designated Zones are special free zones recognized by the UAE Cabinet.
For VAT purposes, they are treated as being outside the UAE only under specific conditions for goods transactions. For Corporate Tax, they enjoy a 0% rate on qualifying income when the criteria are met.
This mix makes them different from regular UAE free zones.
Key points:
- 0% Corporate Tax on qualifying income (subject to economic substance and compliance).
- Preferential VAT treatment on movement of goods between Designated Zones or exports, provided FTA conditions are satisfied.
- Treated as outside UAE for VAT purposes.
UAE Designated Zone Benefits
Migrating to a Designated Zone brings a set of practical benefits:
- 0% corporate tax on qualifying income.
- 0% VAT on transfers between Designated Zones and on exports.
- 100% foreign ownership of the company.
- Access to ports, airports, and global logistics hubs.
- Internationally recognized compliance framework.
These benefits make the UAE Designated Zones a perfect fit for trading, logistics, and investment-focused firms.
Types of Companies That Benefit Most
Not all businesses can maximize the advantages. The strongest benefits go to trading, holding, and logistics firms.
1. International Trading Companies
- Importing goods into UAE Designated Zone warehouses and re-exporting to Africa, Asia, Europe.
- If customs and FTA rules are followed, goods may move between Designated Zones without VAT.
- Qualifying income from overseas clients may be taxed at 0% corporate tax.
Example: An electronics trading company in JAFZA imports laptops from China and re-exports to African markets. Exports can benefit from 0% VAT, and export profits may qualify for 0% corporate tax.
2. Holding and Investment Companies
- Hold shares, intellectual property, and global investments.
- Income from dividends, capital gains, and royalties can qualify for 0% corporate tax if they fall under the FTA’s definition of qualifying income.
- No VAT since no trading of goods is involved.
Example: A European investor sets up a holding company in RAKICC to manage shares in subsidiaries worldwide. Dividend income stays exempt from UAE corporate tax.
3. Logistics and Distribution Hubs
- Act as regional supply centers.
- Goods stored in Designated Zones move across borders without VAT.
- Qualifying income from international clients is taxed at 0%.
Example: A medical supplies company sets up in Dubai South (DWC) to distribute across GCC and Africa. Imports and exports stay VAT-free, and profits attract 0% corporate tax.
Corporate Tax in UAE Free Zones vs Designated Zones
There’s often confusion between free zones and Designated Zones. Both offer tax advantages, but Designated Zones carry a distinct edge:
- Free Zones: Companies may qualify for 0% tax only on certain regulated activities, subject to strict FTA rules.
- Designated Zones: Specifically structured for international trading and logistics, with broader 0% VAT treatment on goods.
Understanding this difference helps businesses choose the right setup for tax efficiency in the UAE.
Conditions to Qualify
To enjoy the UAE Designated Zone benefits, businesses must meet strict conditions:
- Be officially registered in a Designated Zone.
- Maintain adequate economic substance with office space, staff, and operations.
- Generate qualifying income (not local mainland sales).
- Mainland transactions face 9% corporate tax and 5% VAT.
VAT in UAE Designated Zones
VAT rules in UAE Designated Zones are not the same as the mainland.
- Supplies of goods inside a Designated Zone are usually outside the scope of VAT, as long as FTA conditions are met.
- Once goods move from a Designated Zone into the mainland, normal VAT rates apply.
- Businesses must track the flow of goods carefully to stay compliant.
This setup makes Designated Zones attractive for companies handling imports, exports, and re-exports, since many transactions can benefit from 0% VAT in the UAE.
UAE Free Zone vs Designated Zone
Not every free zone is a Designated Zone. Here’s the difference:
- All Designated Zones are free zones.
- Not all free zones qualify as Designated Zones.
The Federal Tax Authority (FTA) defines which zones hold Designated status. In these zones, special VAT rules apply. For example:
- A regular free zone company may follow normal VAT regulations.
- A Designated Zone company may enjoy 0% VAT on certain transactions.
For businesses planning tax efficiency in the UAE, this distinction is essential. Choosing between a free zone and a Designated Zone depends on the type of activity and the supply chain model.
Conclusion
Migrating to UAE Designated Zones is a practical move for international traders, investors, and distributors. The mix of 0% corporate tax, 0% VAT, and global connectivity makes them stand out from other business setups. However, businesses must confirm qualifying income, follow FTA compliance rules, and understand VAT limitations to fully benefit.
Elevate Accounting & Auditing can guide your business through registration, compliance, and tax planning in these zones. With expert support, you can focus on growth while staying fully aligned with UAE regulations.
– Looking to explore the benefits of Designated Zones for your company? Contact Elevate Accounting & Auditing today.