TAXP010: What the FTA's Free Zone and Designated Zone Clarification Means for DIFC and ADGM Companies

On 2 October 2026 the Federal Tax Authority (FTA) added a fourteen page document to its guides page: Tax Public Clarification TAXP010, Free Zones and Designated Zones for Tax Purposes. It changes no law, but it closes off a common shortcut: treating "we are in a free zone" as one fact. TAXP010 says a business must work out whether it is in a free zone or a designated zone separately for corporate tax, for excise tax and for VAT, and the three answers do not have to agree.

The clarification does not mention the DIFC or ADGM by name. It sets tests and tells you who to ask, so what follows is how we would apply those tests to a DIFC or ADGM company and the rest of its group. The full text is on the FTA website (TAXP010, PDF), listed on the corporate tax guides and references page.

Four labels, three taxes

TAXP010 works with four defined terms. Most of the confusion we see comes from using one to mean another.

The sentence in the clarification that matters most is short: a VAT designated zone "is not automatically considered" a designated zone for corporate tax. To be a corporate tax designated zone, the area has to be both on the VAT list and a free zone for corporate tax purposes.

Corporate tax: free zone status opens the door, nothing more

Under Article 1 of the Corporate Tax Law, a juridical person incorporated, established or registered in a free zone, including a non-resident's registered branch, is a Free Zone Person. That alone does not change the rate. The 0% rate in Article 3(2)(a) applies to a Qualifying Free Zone Person (QFZP), and only on its qualifying income.

TAXP010 restates where the conditions live: Article 18 of the Corporate Tax Law, Cabinet Decision No. 100 of 2023, Ministerial Decision No. 229 of 2025, and any other conditions the Minister prescribes. It also restates the two main routes to qualifying income under Article 3(1) of Cabinet Decision No. 100 of 2023:

• income from transactions with another Free Zone Person that is the Beneficial Recipient of the transaction, provided the income is not from an Excluded Activity; and
• income from transactions with non-free zone persons, but only from Qualifying Activities that are not Excluded Activities.

In both cases the income must not be attributable to a domestic or foreign permanent establishment, come from immovable property under Article 6 of that Decision, or be taxable income under Article 7(2). A Beneficial Recipient is the person who has the right to use and enjoy the service or goods and has no obligation to pass them on to someone else. Back to back arrangements can fail that test.

Non-qualifying revenue is tolerated up to the de minimis threshold, the lower of 5% of total revenue or AED 5 million in the tax period. Above that, QFZP status goes.

The consequence of failing is the part we would put in front of every board. Quoting Article 5(2) of Ministerial Decision No. 229 of 2025, TAXP010 says a QFZP that fails any condition at any time during a tax period ceases to be a QFZP from the beginning of that period and for the subsequent four tax periods. That is five years, starting with the year of the lapse.

For a DIFC or ADGM entity the first question is the one TAXP010 tells every taxpayer to put to their free zone authority: are we in a free zone for corporate tax purposes? For a DIFC company that means the DIFC Registrar of Companies; for an ADGM company, the ADGM Registration Authority. Get the answer in writing and keep it on file. Our guide to Qualifying Free Zone Person status for DIFC entities then deals with the harder question, which is whether you meet the conditions year after year. Holding structures have their own points on dividends and gains, covered in our note on corporate tax for DIFC and ADGM holding companies.

Where the designated zone label changes corporate tax

For corporate tax, the designated zone label mostly matters for one Qualifying Activity. Article 2(1)(l) of Ministerial Decision No. 229 of 2025 treats "distribution of goods or materials in or from a Designated Zone" as a Qualifying Activity. TAXP010 is explicit that a QFZP doing distribution gets the 0% rate on that income only if the distribution is carried out in or from a corporate tax designated zone and the other conditions are met. Those conditions include importing the goods into the UAE through the designated zone, supplying them to a customer who resells or processes them for sale, or to a public benefit entity, and following any additional procedures the FTA prescribes.

Holding companies, fund vehicles, family office entities and advisory firms in the DIFC or ADGM do not distribute goods. Where this bites is in the wider group. Take a family holding company in the DIFC that owns a trading subsidiary licensed in another free zone. The subsidiary's distribution income only qualifies if its zone is on the VAT list and is also a corporate tax free zone. That is a question about the subsidiary's zone, not the parent's.

VAT: designated zones are about goods

A VAT designated zone is an area in the list made under Cabinet Decision No. 59 of 2017, as amended, that also meets Article 51(1) of the VAT Executive Regulation. TAXP010 sets out those conditions. The area must be fenced, with security measures and customs controls over people and goods moving in and out. It must have internal procedures for keeping, storing and processing goods, and its operator must follow the FTA's procedures. If so, the zone is treated as outside the UAE for VAT.

Every one of those conditions is about the physical handling of goods. Services supplied in a designated zone are generally taxed under the normal UAE VAT rules, and most DIFC and ADGM companies supply services or hold investments. For them, registration, place of supply and the changes in force since 1 October 2026 apply as they would anywhere else. Our summary of the October 2026 VAT changes covers those.

TAXP010 says to check status in two steps: review the list of designated zones the FTA publishes on its website, then confirm with the free zone authority that the specific area where you are based meets Article 51(1). We would do both for any group entity that handles goods, using the current list rather than an old copy, because Cabinet Decision No. 59 of 2017 has been amended since it was made.

Excise: rarely relevant, but check if you hold goods

An excise designated zone is a fenced free zone with controls on people and excise goods, customs supervision and a Warehouse Keeper, or another area the FTA approves on the Warehouse Keeper's application. A DIFC or ADGM company with no excise goods can note the point and move on. A group entity that imports or stores excise goods should get written confirmation from the free zone authority or Warehouse Keeper, as TAXP010 suggests.

The mistakes TAXP010 is aimed at

The first is assuming that a VAT designated zone is a corporate tax free zone, or the reverse. TAXP010 says in terms that one does not follow from the other.

The second is treating the licence as the tax status. A DIFC or ADGM certificate of incorporation shows where the company is registered. It does not show that the company has adequate substance, earns qualifying income, stays within the de minimis threshold and prepares audited financial statements. Those are facts about each year, and worth checking before the year end rather than at the return.

The third is mixing up tax status with where a company may do business. Whether a free zone company may operate in mainland Dubai is a regulatory question with its own rules, covered in our note on Dubai's free zone mainland rule under Resolution No. 11 of 2025. Permission to operate onshore does not turn onshore income into qualifying income.

The last is testing the parent and assuming the group follows. Each entity has its own zone and its own conditions.

A checklist for each entity in the group

1. List where each entity and any branch is registered.
2. Ask the free zone authority, in writing, whether that location is a free zone and a designated zone for corporate tax purposes.
3. For any entity that buys, stores or moves goods, check the FTA's current list of VAT designated zones and confirm Article 51(1) with the free zone authority.
4. For any entity dealing in excise goods, confirm with the free zone authority or Warehouse Keeper whether the FTA has approved the area.
5. Map each income stream against the qualifying income routes and the de minimis threshold.
6. Confirm the substance, transfer pricing and audited accounts conditions for the whole tax period.
7. Keep the confirmations and analysis with the corporate records.

How Atlas helps

We keep the corporate side in order: registration details, registers, board minutes and the records that show where the entity is managed and who does the work, which is what a QFZP analysis rests on. The tax analysis itself, including whether an entity is a Qualifying Free Zone Person and how VAT applies to its supplies, is carried out by GTAG, our sister company in the GTAG/Assetica group, working from the same file. For a group-wide check against TAXP010, our accounting and tax service page explains how we work together.

This article is general information and does not constitute legal, tax or regulatory advice. It reflects TAXP010 as published by the FTA on 2 October 2026 and the legislation it cites. Confirm the position for each of your entities with your free zone authority, the FTA and a qualified adviser before acting.