In the later parts of this article we are going to explain what is VAT and how VAT on Free Zone companies work and how designated zones different from free zones. However before that we need to understand what is a Free Zone. Free zones are physically defined regions inside the UAE that allow 100% foreign ownership and are often devoted to a single sector (even though most of them are not walled or gated). Many of them were constructed with state money, have world class amenities, and were created with the intention of supporting strategic change in important businesses (like finance (DIFC), Trade (JAFZA), Innovation (DSO) etc).

An example of a free zone in the emirate of Dubai is the Dubai Science Park, which includes infrastructure and licenses tailored to the requirements of the companies involved in carrying out activities related to medicine and medical research. Like this, the Jebel Ali Free Zone (JAFZA) draws businesses in the international trade industry, since JAFZA offers infrastructure and resources to support such kind of business activities.

As a result, each free zone has unique standards for minimum capital requirements, office or warehouse space, and permissible operations; each has the necessary licenses and legal framework to support the growth of its specific sector.