E-invoicing in UAE
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Last updated at
September 19, 2025
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Book NowValue Added Tax (VAT) in the United Arab Emirates (UAE) was introduced in 2018 at a standard rate of 5 percent and applies across mainland and free zones under the regulation of the Federal Tax Authority (FTA). A free zone is a designated economic area that offers tax and customs benefits to attract investment. While many assume free zones are fully exempt from VAT, in reality VAT rules apply in specific ways depending on the type of transaction. Businesses in free zones must also comply with UAE E-invoicing rules from July 2026 for B2B and B2G supplies, and even B2C sellers must onboard since they need to receive purchase invoices through Peppol. This blog explains how VAT applies in free zones, the registration rules, invoicing requirements, and how flick network can support businesses with compliance.
UAE free zones are established to attract global trade and foreign investment by offering tax benefits, simplified customs procedures, and business-friendly regulations. Despite these advantages, VAT is not fully exempt and companies must comply with FTA rules.
The FTA identifies certain areas as designated zones where special VAT rules will apply. Supplies of goods within and between these zones can be treated as outside the scope of VAT. However when goods move to the mainland, VAT will apply in full.
Services provided from free zones will usually follow the same VAT rules as mainland services. Businesses in these zones must assess each supply based on its type and location to apply VAT correctly.
Not all free zones in the UAE have the same VAT treatment. A designated zone is a free zone defined by the FTA under strict criteria. For goods, these zones are treated as outside the UAE for VAT purposes. For services, the same exemption does not apply and VAT will still be charged.
When a company in a designated zone supplies goods to another designated zone, the supply will not attract VAT as long as customs supervision is in place. However, when goods are moved from a designated zone to the mainland, the full VAT rate of 5 percent will apply.
Non-designated zones are treated in the same way as the mainland. That means standard VAT rules apply on every supply of goods or services without exceptions.
A business that operates in a UAE free zone must register for VAT when the value of its taxable supplies in a year exceeds AED 375000. Voluntary registration will be available when supplies exceed AED 187500. The obligation applies even if the company is located in a designated zone because VAT can still apply on some transactions.
For example, when a free zone business sells goods to customers on the mainland it will charge VAT at 5 percent and issue a valid tax invoice. A service provider in a free zone will also need to register when it crosses the threshold because most services attract VAT no matter the location.
Ignoring the rules of registration will result in penalties and compliance issues. Businesses that fail to register on time or issue proper invoices may face fines from the FTA.
The VAT treatment of supplies in UAE free zones will depend on whether the zone is designated or not. When goods are supplied from one designated zone to another and customs conditions are satisfied, the supply is treated as outside the scope of VAT. This benefit will apply only when full customs supervision is in place.
If the same goods are moved from a designated zone to a mainland business, VAT at 5 percent will apply in full. A free zone company that ignores this rule will risk penalties. For services, the rules are more direct and do not change with location.
Services supplied by a free zone business to a mainland customer are always taxable. For example, a software provider in Dubai Internet City which is a non designated zone will charge VAT on supplies to a mainland retailer. Businesses must monitor the flow of goods and services carefully to apply the correct VAT treatment.
A number of supplies made by free zone businesses will qualify as zero rated or exempt. Zero rated supplies include exports of goods and services outside the GCC implementing states, international transport services, and certain healthcare or education services. These supplies are taxed at zero percent but still require reporting to the FTA.
Exempt supplies are different and include financial services such as interest on loans as well as certain residential property transactions. A free zone logistics company that exports goods to Europe will charge VAT at zero percent but it must still keep full records of the transaction.
Even if VAT is zero or exempt, a business must register when it crosses the threshold. It will also comply with invoicing and record keeping rules to avoid penalties on non compliance.
From July 2026 every registered entity in the UAE will comply with e invoicing rules regardless of location. A free zone business whether designated or non designated will issue and receive invoices digitally. The FTA requires e-invoices for all B2B and B2G transactions so integration with the system is mandatory.
This requirement applies even to entities that are not VAT registered since B2B refers to any business entity. Only B2C transactions with individual consumers are excluded from issuing e invoices but these companies are not fully exempt from the system.
A B2C only business in a free zone will still onboard to Peppol because it must receive supplier purchase invoices. For instance a retail store that sells only to consumers will integrate with the system to stay compliant.
A number of free zone businesses assume they are fully exempt from VAT when in fact they are not. A company that crosses the registration threshold and fails to register will face penalties. Some apply the wrong VAT rate on supplies to the mainland while others issue invoices that are not valid under the FTA rules.
Another mistake is the neglect of the UAE e invoicing requirement that will apply from July 2026. A business that delays integration will face system rejections and compliance risks which will affect operations and payments.
To prevent these issues, a business should keep proper records, issue valid tax invoices, and adopt automated tools. Solutions like flick network make compliance easier and help reduce costly errors.
Complying with VAT and e-invoicing in free zones can be complex because of designated zone rules, different supply types, and strict reporting obligations. flick network provides an end-to-end solution that automates VAT calculation, invoice generation, and compliance so businesses can operate without complexity.
Here’s how Flick supports businesses:
Seamless Integration with Existing Systems
Flick works on top of existing ERP or accounting software. It converts invoices automatically into the required format so there is no need for a full system change.
Real Time Validation with FTA
Invoices are validated by the FTA before reaching the buyer. This ensures compliance on every transaction and prevents delays or rejections.
Automated VAT and Compliance Updates
Flick updates its system whenever regulations change. Businesses will stay compliant without managing technical updates on their own.
User Friendly Dashboard
A business can track invoice status in real time, view validations, spot errors, and make corrections in one place.
Faster Payments and Fewer Errors
Accurate real time submissions reduce disputes. Buyers will approve invoices faster which improves cash flow for suppliers.
VAT applies in free zones based on the type of supply and whether the zone is designated or not. The registration threshold remains AED 375,000 and businesses must issue valid tax invoices on taxable supplies. From July 2026 UAE E-invoicing becomes mandatory for B2B and B2G transactions, and even B2C sellers must join the Peppol system to receive supplier invoices. Non-compliance can lead to penalties and disruption of trade. Flick offers a simple solution to help free zone businesses meet VAT and e-invoicing requirements with ease.
Contact our team today to get started with flick network.
1. Do free zone businesses need to follow UAE E-invoicing rules?
Yes, all businesses including free zone companies must comply with UAE E-invoicing for B2B and B2G transactions.
2. Is UAE E-invoicing required for non-VAT registered businesses in free zones?
Yes, UAE E-invoicing applies to all B2B and B2G entities even if they are not VAT registered.
3. Do B2C-only sellers in free zones need UAE E-invoicing?
Yes, they must onboard to receive supplier purchase invoices through Peppol even if they only sell to consumers.
4. When does UAE E-invoicing become mandatory in free zones?
UAE E-invoicing is mandatory from July 2026 for all registered entities including free zone businesses.
5. Can Flick help free zone companies with UAE E-invoicing integration?
Yes, flick network provides automated solutions for VAT compliance and UAE E-invoicing integration.
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