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Free Zone Tax Guide 2025

Explore Dubai Free Zone tax and accounting compliance in 2025. Get expert tips from chartered accountants to stay compliant and avoid penalties.

CA Ramesh Gupta

8/3/20255 min read

Ultimate Guide to Free Zone Accounting & Tax Compliance in Dubai, UAE – 2025 Edition

Index: Free Zone Tax & Accounting Guide 2025

Introduction:

With the UAE’s business-friendly policies, Dubai continues to be a global hotspot for entrepreneurs, startups, and multinational companies. A large number of these businesses are based in free zones, which offer various incentives including 100% foreign ownership, zero customs duties, and simplified company setups.

However, despite these benefits, accounting and tax compliance in Dubai’s free zones have become increasingly complex—especially with the introduction of Corporate Tax and strict VAT regulations.

In this guide, we’ll explore everything you need to know about free zone accounting and tax compliance in Dubai in 2025. Whether you operate in DMCC, DAFZA, JAFZA, or Dubai South, this blog will help you stay compliant and audit-ready.

What Is a Free Zone in Dubai?

Free zones are special economic zones that allow foreign investors to fully own and operate businesses without the need for a UAE national partner.

Dubai alone is home to over 30+ free zones, each catering to specific industries—from technology and media to logistics and manufacturing. Popular free zones include:

DMCC (Dubai Multi Commodities Centre)

DAFZA (Dubai Airport Freezone Authority)

JAFZA (Jebel Ali Free Zone Authority)

Dubai Silicon Oasis (DSO)

Dubai South (DWC / Aviation District)

Each free zone operates under its own regulatory authority and offers tailored licensing structures.

Key Accounting Requirements for Free Zone Companies

Even though free zones offer relaxed business conditions, accounting regulations have become stricter, especially after the implementation of the UAE Corporate Tax Law.

Here are the current accounting requirements for free zone entities:

1. Maintaining Proper Financial Records

All free zone businesses must maintain complete books of accounts for at least 7 years, including:

General ledger

Trial balance

Bank statements

Invoices (sales & purchases)

VAT records

Payroll records (if applicable)

2. IFRS-Based Financial Statements

Free zone entities are required to prepare their financial statements in compliance with International Financial Reporting Standards (IFRS).

3. Annual Audit Requirement

Most free zones mandate companies to submit audited financial statements every year. For example:

DMCC: Audit is mandatory for all license types

DAFZA & JAFZA: Annual audits are compulsory

Dubai South: Audit required depending on business type

It’s advisable to appoint a registered audit firm approved by the respective free zone authority.

Understanding Free Zone Tax in Dubai – 2025

Contrary to popular belief, not all free zone businesses are exempt from corporate tax. Here’s how the UAE Corporate Tax Law affects free zone companies as of 2025:

1. 0% Corporate Tax for Qualifying Free Zone Persons

If your free zone company meets the conditions under Article 18 of the UAE Corporate Tax Law, you may be eligible for 0% corporate tax on qualifying income.

To qualify:

The business must maintain adequate substance in the free zone

It should not elect to be subject to standard corporate tax

It should earn qualifying income (e.g., transactions with other free zone entities, or income from outside UAE)

2. 9% Corporate Tax on Non-Qualifying Income

If your free zone entity conducts business with mainland companies (e.g., providing services or selling goods), this income may be subject to 9% corporate tax.

3. Transfer Pricing Compliance

Free zone companies, especially those with group structures or related-party transactions, must comply with Transfer Pricing rules and submit Disclosure Forms and Master/Local Files (if applicable).

VAT in Free Zones: Key Compliance Points

The UAE imposes a 5% Value Added Tax (VAT) on most goods and services. Free zone companies must adhere to the following:

1. VAT Registration

Free zone businesses must register for VAT if their taxable turnover exceeds AED 375,000 annually. Even those below this limit may voluntarily register to claim input VAT.

2. Designated vs. Non-Designated Free Zones

Only certain free zones are considered "Designated Zones" for VAT purposes. These include DAFZA, JAFZA, and Dubai South.

Transactions within designated zones may be treated as outside the scope of VAT, but only if strict conditions are met (e.g., goods are not consumed within the UAE).

3. VAT Return Filing

Registered businesses must file VAT returns quarterly or monthly via the FTA portal, depending on the assigned tax period.

4. Invoice Requirements

Invoices must comply with UAE VAT law, including TRN, invoice number, tax rate, and amount. Non-compliant invoicing can lead to administrative penalties.

Why Free Zone Companies Need Professional Accounting Support

Due to varying rules across different free zones and increasing tax obligations, companies can easily make compliance errors that lead to penalties, audits, or legal issues.

Here’s why partnering with a firm like Gupta Accountants makes a difference:

Free Zone Expertise

We specialize in DMCC accounting services and are familiar with the unique compliance requirements of DAFZA, JAFZA, Dubai South, and more.

End-to-End Services

From bookkeeping and VAT filing to corporate tax planning, we handle all financial operations — so you can focus on growth.

Audit-Ready Records

We maintain and reconcile your records according to IFRS and free zone standards, ensuring smooth audits and license renewals.

Corporate Tax Structuring

We help you evaluate whether your entity qualifies for 0% tax and advise on restructuring if needed to remain compliant.

Penalties for Non-Compliance (2025 Update)

The Federal Tax Authority (FTA) and free zone regulators have stepped up enforcement. Some potential penalties include:

Failure to maintain proper records

Failure to submit the VAT return

Fines for incorrect tax filings or false declarations

Disqualification from 0% tax due to non-substance or improper transaction

Common Mistakes Free Zone Businesses Make

Even well-run companies can fall into traps like:

Assuming all free zone income is tax-free

Failing to register for VAT when required

Not reconciling bank statements with ledgers

Delaying annual audits until license renewal

Ignoring related-party transaction disclosures

Avoiding these mistakes can protect your business from both financial and reputational harm.

Tips for Staying Compliant in 2025

Here’s how your free zone business can stay ahead:

Keep accurate and timely records using cloud-based accounting software (like Tally, Zoho, Xero, or QuickBooks)

Reconcile all transactions monthly

Conduct internal audits every 6–12 months

Appoint a tax consultant to review VAT and corporate tax filings

Submit audited financial statements before license renewal deadlines

Stay updated on changes from the FTA and your free zone authority

How Gupta Accountants Can Help

At Gupta Accountants, we are dedicated to helping free zone businesses across Dubai simplify their accounting and tax needs.

Whether you operate in DMCC, JAFZA, DAFZA, or Dubai South, we offer:

Monthly Bookkeeping & VAT Compliance

Corporate Tax Assessment & Filing

Year-End Audit Preparation & Financial Reporting

Transfer Pricing Advisory for Group Companies

Business Setup & Restructuring Support

We work as your outsourced finance department — helping you reduce costs, improve compliance, and make better business decisions.

Final Thoughts

As Dubai’s free zones evolve under the UAE’s new tax framework, staying compliant is no longer optional — it’s essential. Businesses must take a proactive approach to accounting and taxation to remain competitive, avoid penalties, and build trust with regulators and partners alike.

Whether you're a startup in DMCC or an established logistics firm in JAFZA, a clear, compliant financial system is key to your success.

Need help with free zone accounting and tax compliance in Dubai?

Get in touch with Gupta Accountants today for expert support tailored to your free zone business.