Corporate Tax for Free Zone Companies in the UAE

The single most common thing we hear from free zone company owners is some version of: "Corporate tax doesn't apply to me, I'm in a free zone."

It is the most expensive misunderstanding in the UAE right now, and it comes in two parts. The first is that free zone companies are outside corporate tax. They are not. The second is that the 0% rate is automatic. It is not. It is a status called Qualifying Free Zone Person, you have to earn it, and if you drop it you lose it for five years.

Here is what the law actually requires.

Corporate tax applies to you. Registration is not optional

Federal Decree-Law No. 47 of 2022 introduced UAE corporate tax for financial years beginning on or after 1 June 2023. The headline rates:

• 0% on taxable income up to AED 375,000
• 9% on taxable income above that

Free zone companies are inside this regime, not outside it. Every taxable person, including a free zone company, including one that will ultimately pay 0%, including a dormant one, must register with the Federal Tax Authority and file a return. You can verify these rules directly with the Federal Tax Authority.

Late registration carries an administrative penalty of AED 10,000. It is charged for being late, not for owing tax. Companies that owe nothing at all have paid it.

The return is due within nine months of the end of your tax period. A company with a 31 December year end files by 30 September of the following year.

What a Qualifying Free Zone Person actually is

A QFZP pays 0% on Qualifying Income and 9% on everything else. It is not a blanket exemption on all your profit; it is a rate that attaches to certain income.

To be a QFZP you must meet every one of these, not most of them:

Miss any single condition and you cease to be a QFZP for that tax period and the four tax periods that follow. That is the sentence most people have never read. A slip in year one is a 9% rate through year five.

Which income actually qualifies

Broadly, Qualifying Income comes from:

• Transactions with other free zone persons, where they are the beneficial recipient
• Qualifying activities listed by Cabinet and Ministerial decision (including manufacturing, processing, holding shares and securities, ownership and operation of ships, fund and wealth management for regulated entities, reinsurance, headquarter services to related parties, treasury and financing services to related parties, and logistics services)
• Income from Qualifying Intellectual Property, under a specific formula

And, just as importantly, some activities are explicitly excluded. Income from them never qualifies, and it counts against your de minimis limit:

• Transactions with natural persons (individuals), with narrow exceptions
• Banking, insurance, and most finance and leasing activities
• Ownership or exploitation of UAE immovable property, other than commercial property in a free zone let to another free zone person

Read that first exclusion again. If your free zone company sells to individuals, which includes most consultancies, most e-commerce, and most agencies with individual clients, that revenue is not qualifying income. Plenty of free zone companies have no qualifying income at all and are simply 9% businesses above AED 375,000. Better to know now than at the audit.

Mainland income, and the fastest way to lose the 0%

If your free zone company earns income through a mainland branch or a permanent establishment on the mainland, that income is taxed at 9%. It doesn't destroy your QFZP status by itself, but the moment your non-qualifying revenue crosses the de minimis threshold, the whole status goes.

The de minimis limit is the lower of AED 5,000,000 or 5% of total revenue. For a company turning over AED 10m, that means AED 500,000, not AED 5m. Small companies get a very small allowance, and it is easy to blow through it without noticing.

Small Business Relief and the trade you're making

Ministerial Decision No. 73 of 2023 allows a business with revenue of AED 3,000,000 or less to elect to be treated as having no taxable income for that period. It is available for tax periods ending on or before 31 December 2026.

It is genuinely useful for young companies. But two conditions matter:

• You still register and still file. Relief is claimed on a return; it is not an excuse not to submit one.
• A QFZP cannot claim it. The two are mutually exclusive. Elect Small Business Relief and you are not a Qualifying Free Zone Person for that period.

For a small free zone company with genuinely qualifying income, that election can be the wrong move. You give up a status that would have taxed that income at 0% anyway, in exchange for relief you didn't need. Run both numbers before you tick the box.

What we'd actually do

For a free zone company, the work is a status assessment, and it is mostly arithmetic:

Sometimes the outcome of this exercise is that a client should stop trying to be a QFZP, take the 9%, and stop paying for structure they get nothing from. We will say so.

This is general guidance, current as at July 2026. Corporate tax is a young regime and the decisions under it are still being issued and clarified. Treat 0% as something to establish with your accountant, not something to assume. Your own position may turn on facts we can't see from here.

Have your free zone status tested before the FTA does

If nobody has split your revenue into qualifying and non-qualifying, and nobody has tested your de minimis limit, then your 0% rate is an assumption rather than a position. It is one that unwinds for five years, not one.

Our tax team will assess your QFZP status, model it against Small Business Relief, and tell you plainly which rate you are actually on. If you're already compliant, that's the answer you'll get, and it costs you an hour. If you're not, you would much rather hear it from us.

Setting up now rather than fixing later? Structure the entity correctly at the start (see free zone company formation).