UAQ Free Trade Zone Elevates UAE’s Economic Landscape as a Designated Free Zone

UAQ Free Trade Zone Elevates UAE’s Economic Landscape as a Designated Free Zone

June 25, 2024

Designated Free Zone

The Umm Al Quwain Free Trade Zone (UAQ FTZ) has been officially recognised as a designated free zone under Cabinet Decision No. 54  of 2023. This has propelled UAQ FTZ to the forefront of the UAE’s economic landscape. As a designated free zone, UAQ FTZ now offers unparalleled corporate tax and regulatory advantages, setting a new standard for business excellence and attracting global investors to the UAE.

This blog covers:

Introduction to Designated Zones

Designated zones in the UAE, commonly known as Free Zones, Special Economic Zones (SEZs), and Industrial Zones, are specially demarcated areas that offer various fiscal and regulatory incentives to businesses. These zones are designed to attract foreign investment, boost exports, and promote economic activities that are pivotal to the nation’s broader economic goals.

Key Types of Designated Zones:

  • Free Zones: Offer 100% foreign ownership, zero import/export duties, and simplified business procedures.
  • Special Economic Zones (SEZs): Provide tax incentives and infrastructure to encourage manufacturing, trade, and services.
  • Industrial Zones: Focus on heavy industries, manufacturing, and logistics with tailored incentives and robust infrastructure.

Importance of UAQFTZ as a Designated Free Zone

1. Designated Free Zone Status

The designation of UAQFTZ as one of the designated free zones in the UAE implies compliance with particular standards and regulations set forth by the UAE government. This status offers:

  • Corporate Tax Advantages: Businesses in UAQFTZ benefit from specific corporate tax reliefs and incentives not available to free zones that do not hold the designated status.
  • Regulatory Benefits: UAQFTZ adheres to guidelines that ensure streamlined operations, legal clarity, and enhanced regulatory oversight, providing an added layer of stability and predictability for investors

2. Advantages Over Non-Designated Free Zones

While all free zones in the UAE offer incentives such as 100% foreign ownership and duty-free import/export, designated free zones like UAQFTZ offer additional benefits:

  • Specific Tax Exemptions: Designated free zones often enjoy exemptions from VAT on transactions involving goods and services within the zone and between other designated zones, a feature not uniformly available across non-designated free zones.
  • Enhanced Compliance Standards: They are subject to rigorous compliance standards that align with international best practices, fostering greater business confidence

Maximising Zero-Tax Benefits for Trading Firms in UAE’s Designated Free Zones

Designated Free Zones (DFZs) in the UAE provide significant tax advantages for trading firms, including exporters and importers. Under the UAE Corporate Tax framework rolled out in 2023, trading companies in DFZs can benefit from a zero-percentage tax on qualifying income, a provision designed to bolster the UAE’s exports and manufacturing sectors. This post explores how trading firms can leverage these benefits, the conditions they must meet, and the impact on the UAE’s economic landscape.

Understanding Zero-Tax Benefits in Designated Free Zones
The UAE’s Corporate Tax framework, implemented in 2023, sets a 9.0% tax rate on annual taxable income above AED 375,000 for all businesses. However, trading companies in DFZs, categorized as Qualifying Free Zone Persons (QFZPs), can enjoy a zero-tax rate on qualifying income, provided they meet specific conditions set by the UAE Federal Tax Authority (FTA).

Qualifying Activities for Zero-Tax Benefits

  • Importing Goods: Goods imported into a DFZ for sale to mainland customers can be eligible for zero tax, provided the import occurs through any designated free zone.
  • High-Sea Trading: Transactions where goods are bought from one country and sold to another without passing through UAE ports can qualify for zero tax.
  • Steps to starting a company in UAQFTZ
  • Exporting Goods: Income from goods purchased from the mainland and exported by a DFZ company to customers outside the UAE can also benefit from zero tax, even if the goods do not pass through the DFZ 

Conditions for Benefiting from Zero-Tax Provisions

Designated Free Zone Company Requirements

To qualify for the zero tax rate, a trading firm must be registered and operate within a DFZ. Key conditions include:

  • Adequate Substance: The company must conduct its distribution activities within or from the DFZ.
  • Operational Presence: The firm should have sufficient qualified employees and incur business expenses within the DFZ.
  • Non-End User Sales: The customer buying goods from the DFZ trader must use the goods for resale or processing and resale, not for personal consumption.

Compliance and Documentation

Firms must maintain proper documentation to demonstrate compliance with the FTA’s guidelines, including:

  • Proof of Activity: Evidence that trading and distribution activities are conducted within the DFZ.
  • Employee Records: Documentation of qualified employees working in the DFZ.
  • Expense Records: Financial records showing that business expenses are incurred within the DFZ.

Failure to meet these conditions could result in losing the zero-tax benefit for up to four years, even if the company rectifies its compliance in subsequent years.

Strategic Advantages for Trading Firms in DFZs

Boosting Exports and Manufacturing
The zero-tax provision for DFZ trading firms is poised to significantly boost the UAE’s exports and manufacturing sectors by reducing operational costs and enhancing competitiveness. Key benefits include:

  • Cost Efficiency: Savings from zero-tax on qualifying income enable firms to reinvest in their operations and expand their market reach.
  • Market Expansion: Enhanced tax benefits make UAE DFZs attractive hubs for global trade, encouraging more international businesses to establish operations.

Enhancing Global Trade Relations
By facilitating high-sea trading and third-port shipments, the zero-tax provision helps UAE-based firms strengthen trade relations with other countries. This not only promotes the UAE as a global trading hub but also diversifies its economic portfolio.

Leveraging Tax Benefits

Import and Export
Utilise the zero-tax provision for goods imported into the DFZ for mainland sales and for exporting goods purchased from the mainland.
High-Sea Trading
Engage in high-sea trading by buying and selling goods between countries without routing them through UAE ports to capitalise on zero-tax benefits.

Implications of Corporate Tax in a Designated Free Zone

1. Understanding Corporate Tax in the UAE
The introduction of corporate tax in the UAE marks a significant shift in the fiscal landscape. Generally, corporate tax applies to businesses at a standard rate of 9% on profits exceeding AED 375,000. However, designated free zones like UAQFTZ offer specific benefits regarding corporate tax.

2. Corporate Tax Benefits in UAQFTZ
Businesses in UAQFTZ benefit from tailored corporate tax incentives as it it a designated free zone:

  • Tax Neutrality for Eligible Activities: Income generated from activities within the free zone or qualifying transactions between designated zones can often be exempt from corporate tax. This creates a favourable tax environment for companies operating in UAQFTZ, allowing them to retain more of their earnings.
  • Exemptions for Strategic Activities: Certain strategic business activities deemed essential for economic development are granted tax exemptions. These activities typically include manufacturing, logistics, and high-tech industries, which are crucial for economic diversification.

 3. Compliance and Reporting
To maintain corporate tax benefits in UAQFTZ, businesses must adhere to:

  • Regulatory Requirements: Companies must ensure compliance with the specific guidelines and reporting standards set by the UAQFTZ authority. This involves accurate record-keeping, financial reporting, and adherence to designated zone regulations.
  • Substance Requirements: Businesses need to demonstrate sufficient economic substance, meaning that core income-generating activities are carried out within the zone, and adequate staff, premises, and expenditure are maintained.


The UAQ Free Trade Zone’s status as one of UAE’s designated free zones under Cabinet Decision No. (54) of 2023 positions it as a prime location for businesses seeking advantageous fiscal and regulatory conditions in the UAE. The corporate tax implications provide significant incentives for businesses to operate within the zone, emphasising the importance of strategic planning and compliance to fully leverage these benefits. As the UAE continues to evolve its economic landscape, designated free zones like UAQFTZ will play a pivotal role in driving growth and attracting global business ventures.

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