Introduction
Setting up a company in a UAE free zone is one of the most popular routes for entrepreneurs and investors. Free zones allow 100% foreign ownership, simplified licensing, customs advantages, and attractive tax treatment. Whether you plan to open a consultancy, a logistics firm, a tech startup, or a trading business, free zones in Dubai and across the UAE are designed to make the process straightforward.
This article explains how UAE free zones work, what tax and VAT rules apply, which free zones are best suited for different activities, and how to complete the setup process step by step.
Quick Answers: What You Need to Know
What is a UAE free zone?
It is a designated business area offering incentives such as full foreign ownership, simplified import/export procedures, and flexible licensing.
Can a free zone company sell in the UAE mainland?
Not directly. You would need either a dual licence, a local branch, or a distributor/agent arrangement approved by the mainland authorities.
Do free zones pay corporate tax?
Yes, but qualifying free zone businesses may be taxed at 0% on qualifying income if they meet strict conditions such as having real substance and audited accounts. Other income is generally taxed at 9%.
Is VAT applied in free zones?
VAT in the UAE is 5%. Some free zones are designated zones where certain goods transactions may be treated as outside the UAE for VAT purposes. Services are usually subject to VAT as normal.
How long does setup take?
With the right documents and approvals, many free zones allow setup in a few days to a few weeks. More complex cases may take longer.
Free Zone vs Mainland vs Offshore
When choosing where to set up, it is important to understand the differences.
- Free zones give you ownership freedom, easy licensing, and in some cases tax incentives, but direct trade with the mainland is restricted.
- Mainland companies allow full access to the UAE domestic market and government contracts but are subject to stricter rules and full corporate tax.
- Offshore structures are designed mainly for holding and international operations and cannot carry out business inside the UAE.
How Free Zones Operate
Each free zone is governed by its own authority. They generally allow the following:
- Legal structures such as Free Zone Establishments (FZE), Free Zone Companies (FZC or FZ-LLC), and branches of foreign or local companies.
- Different licence categories including service licences, commercial and trading licences, industrial or manufacturing licences, and specialised licences in areas like media, technology, or finance.
- Office options ranging from flexi-desks to full warehouses. The size of your office usually determines how many residency visas you can obtain.
- Some zones even allow the redomiciliation of a foreign company or the opening of a branch.
Corporate Tax in Free Zones
As of 2025, corporate tax applies in the UAE, but free zone entities can benefit from a reduced rate if they qualify.
To enjoy a 0% rate on qualifying income, a company must:
- Be established in a free zone.
- Carry out qualifying activities and avoid excluded activities.
- Maintain sufficient economic substance, such as staff and assets in the free zone.
- Keep audited financial statements.
- Ensure that non-qualifying income does not exceed the de-minimis threshold (the lower of AED 5 million or 5% of total income).
If a free zone company fails these conditions, all of its income becomes taxable at the standard 9% rate.
VAT and Designated Zones
VAT in the UAE is charged at 5%. Every company making taxable supplies above AED 375,000 per year must register.
Certain free zones are designated zones for VAT. These zones are fenced and closely monitored, often linked to ports and logistics hubs. Goods transferred within or between these zones may be treated as outside UAE territory for VAT purposes. However, supplies to the mainland are subject to VAT as normal. Services supplied from free zones are almost always taxable.
How to Set Up a Free Zone Company in Dubai or the UAE
The steps are relatively straightforward, but they must be followed carefully:
- Choose your business activity and legal structure.
- Select the free zone that best fits your activity, budget, and visa needs.
- Reserve your company name and obtain initial approval.
- Prepare documents such as passport copies, application forms, and in some cases a business plan or bank reference.
- Submit your application to the free zone authority.
- Secure an office lease or flexi-desk as required.
- Receive your incorporation certificate and licence.
- Register for VAT if applicable and for corporate tax within the required timeframe.
- Open a corporate bank account.
- Apply for visas for yourself and any employees.
Choosing the Right Free Zone
There are more than 40 free zones across the UAE. Some are industry-specific, while others are general purpose.
- Dubai Multi Commodities Centre (DMCC) is well known internationally and suits trading and professional services.
- IFZA and Meydan Free Zone are popular with startups thanks to flexible packages and quick setup.
- JAFZA near Jebel Ali Port is ideal for logistics and industrial businesses.
- RAKEZ in Ras Al Khaimah and SHAMS in Sharjah are cost-effective options for SMEs and creative industries.
- DIFC in Dubai and ADGM in Abu Dhabi are financial centres, suitable for regulated activities like banking and fintech.
Banking, Visas, and Compliance
After incorporation, most companies will need to open a UAE bank account. Banks usually require the licence, incorporation documents, proof of business activity, and sometimes contracts or invoices. Banking can take longer than company setup, so planning is essential.
Free zone companies can sponsor visas for owners and employees. The number of visas depends on the size of the office lease. Health insurance is also mandatory.
Ongoing compliance includes annual licence renewal, visa renewal, bookkeeping, corporate tax returns, VAT filings, and in many cases audited accounts. Free zone companies must also comply with Economic Substance Regulations and Ultimate Beneficial Owner reporting.
Costs and Timelines
The overall cost of setting up a company depends on the licence type, free zone authority, office space, visa packages, and professional fees. A service company in a cost-effective free zone can often start at a lower price, while trading or industrial licences are more expensive.
Timelines vary. Some zones issue licences in a matter of days, while others take longer due to approvals or document checks. Bank account opening is often the longest stage, sometimes taking several weeks.
FAQs
Do free zone companies pay tax?
Yes, but if they qualify under the free zone tax regime, they may enjoy a 0% rate on certain income. Otherwise, a 9% corporate tax applies.
What is a designated zone for VAT?
It is a free zone with special status for VAT purposes, mainly affecting the treatment of goods.
Can a free zone company trade with mainland UAE?
Yes, but only through a dual licence, a branch, or by appointing a mainland distributor.
What documents are needed to set up?
Typically passports, application forms, proof of address, and sometimes a business plan or financial statements.
How long does the process take?
From a few days to a few weeks for incorporation, with banking often taking longer.
Conclusion
UAE free zones remain one of the most flexible and attractive ways to establish a business in the region. With 100% ownership, modern infrastructure, and opportunities for tax optimisation, they are particularly appealing to international entrepreneurs. But choosing the right zone, understanding tax and VAT rules, and ensuring compliance with banking and visa requirements are all critical.
At Persona Finance, we help businesses navigate this process smoothly. From selecting the best free zone to managing incorporation, corporate tax, VAT registration, and banking support, our team ensures your UAE setup is efficient, compliant, and ready for growth.
👉 Book a free consultation today and start your UAE free zone company setup with confidence.
