Understanding Designated Zones in the UAE: A Business Guide

May 10, 2025
Tax

The United Arab Emirates (UAE) has established designated zones as part of its free zone framework to encourage foreign investment and boost trade. These zones offer unique tax and customs advantages, making them attractive for businesses looking to operate in the region. 

In this blog, we’ll explore what designated zones are, their benefits, and how they differ from other free zones in the UAE. 

What are designated zones in the UAE?

Designated Zones are special economic areas recognized by the UAE government for VAT (Value Added Tax) and customs purposes. These zones are treated as being outside the UAE’s mainland for VAT for specific supplies of goods, meaning certain transactions within them are exempt from VAT.

The UAE Cabinet defines these zones, and businesses operating within them must adhere to specific regulations to qualify for tax benefits. 

Key features of designated zones.

  • VAT Exemption – Certain supplies of goods within these zones(from and to designated zones) are often VAT free. However, supplies of services are subject to normal UAE VAT rules. 
  • Customs Benefits—Goods can be imported, stored, and reexported without customs duties. 
  • Controlled Access—These zones are fenced and monitored to ensure compliance. 

How are designated zones different from free zones?

While all Designated Zones are a type of free zone, not all free zones are Designated Zones. The key differences include: 

  •  VAT Treatment : Considered outside UAE for VAT purposes  Subject to UAE VAT rules   
  •  Customs Duties : Exempt if goods stay within the zone  May have customs benefits but not always VATexempt   
  •  Physical Control : Fenced and secured  May not always have strict physical controls

Benefits of setting up in a designated zone.

  • Tax Efficiency—VAT exemptions on intrazone transactions reduce costs. 
  • Trade Advantages—Duty-free imports and exports enhance supply chain efficiency. 
  • Foreign Ownership—No need for a local sponsor (unlike mainland businesses). 
  • Simplified Compliance—Streamlined customs and tax procedures. 

List of recognized designated zones.

The UAE government has approved several designated zones, including 

  •  Jebel Ali Free Zone (JAFZA)  
  •  Dubai Airport Free Zone (DAFZA)  
  •  Abu Dhabi Airport Free Zone  
  •  Khalifa Port Free Trade Zone  
  •  Dubai Multi Commodities Centre (DMCC) 

Who should consider a designated zone?

These zones are ideal for: 

  •  Trading companies dealing with imports and exports  
  •  Logistics and warehousing businesses  
  •  Ecommerce and distribution hubs  
  •  Manufacturers looking for tax efficient supply chains

Compliance requirements.

To maintain tax benefits, businesses must: 

  • Ensure transactions occur within the zone. 
  • Keep proper records for audits. 
  • Avoid unauthorized movement of goods to the mainland without proper customs clearance. 

Final thoughts.

Designated zones offer significant advantages for businesses engaged in international trade. By leveraging tax exemptions and customs benefits, companies can optimize costs while operating in a globally connected hub like the UAE. 

If you’re considering setting up in a Designated Zone, consult with a tax advisor or business consultant to ensure compliance and maximize benefits. 

Would you like help navigating UAE business regulations? Let us know in the comments!