Performance analysis and test for passive radio frequency identification (RFID) system at ultra high frequency (UHF) band in free space and line-of-sight (LOS) indoor environments are conducted in this article. Performance degradation of different materials is presented, in terms of power received by tag and reader, communication range and link information rates, etc. Particularly, the multipath fading and root mean square (RMS) delay spread in LOS indoor environments are analyzed by a 5-ray model with different polarization, such as horizontal polarization, vertical polarization and circular polarization. A practical test is carried out on an indoor balcony of an office building. In addition, the electric field environment is simulated to analyze multipath degradation using the tool of Ansoft HFSS. According to the test, the recognition rate is almost consistent with the results of theoretical analysis and simulation. The small scale fading and the field nulls are observed. The multipath degradation significantly affects the passive RFID system on communication range and recognition rate, and it is also one of the key limitations on system performance. The variations of power in multipath environments can also influence the information rates, while the rates are still enough for available standard and applications at short range.