Do I Need to Charge VAT on a Commission Paid to a Free Zone Company?

This question comes up constantly, usually phrased as “my Free Zone company earns a commission — is that VAT-free because we’re in a Free Zone?” The short answer: being registered in a Free Zone doesn’t, by itself, exempt a service from VAT.

VAT on a service like a commission or brokerage fee is generally determined by the place of supply, not the location of the company issuing the invoice. For most services, the place of supply is where the supplier is established. So a Free Zone company providing a service to a UAE-based client is typically making a standard-rated supply at 5%, the same as a mainland company would.

Where it gets genuinely different: the small number of Free Zones classified as “Designated Zones” for VAT purposes get special treatment — but that treatment applies mainly to the movement of goods within and between Designated Zones, not to services like commissions. Assuming a Designated Zone status covers commission income is one of the most common misreadings of the rule.

The practical fix: don’t classify VAT treatment by the Free Zone name on the licence. Classify it by what’s actually being supplied (goods vs. services), to whom, and where. If commission structures are a regular part of your revenue, it’s worth having this reviewed once properly rather than repeating an assumption every invoice.