Free Zone Corporate Tax: Does 0% Apply to You?
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Free Zone Companies & Corporate Tax: Does 0% Really Apply to You?

The 0% Free Zone rate is real — but far narrower than most owners assume. Here is how qualifying income, substance and the de minimis rule actually work.

Corporate Tax

The headline vs the fine print

"Free zone = 0% tax" is the most expensive oversimplification in the UAE. The law grants 0% only to a Qualifying Free Zone Person (QFZP), only on qualifying income, and only while a strict set of conditions is continuously met. So, does the 0% rate really apply to your free zone company? Let’s walk through it honestly. Free zone companies across the UAE face the same question this year. (VAT treats zones differently — see our free zone vs designated zone VAT guide).

What actually qualifies

Broadly: income from transactions with other free zone persons, and income from a defined list of qualifying activities — manufacturing, fund and wealth management, logistics, reinsurance and others. Routine sales to mainland UAE customers are generally not qualifying income.

The de minimis tripwire

Non-qualifying revenue must stay within the de minimis limit — the lower of AED 5 million or 5% of total revenue. Exceed it, even slightly, and QFZP status is lost for that year and the following four years: everything taxed at 9% for five years.

Substance and audit are mandatory

A QFZP must maintain adequate substance in the zone — real people, premises and activity — and must prepare audited financial statements regardless of size. An unaudited free zone company claiming 0% is non-compliant by definition.

Transfer pricing applies to you too

QFZPs must comply with arm’s length rules and documentation for related-party dealings. Free zone groups that shuffle income between entities without documentation are precisely who these rules target.

The honest decision some owners face

For some businesses, electing to simply pay 9% is cheaper and safer than maintaining QFZP compliance. The right answer depends on your revenue mix — which is exactly what a qualifying income assessment tells you.

💡 Quick tip: Before assuming 0%, map every revenue stream against the qualifying activities list. One mainland-heavy contract can change your whole tax position.

References & Official Sources

  1. Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses — official link
  2. Federal Tax Authority — Corporate Tax portal — official link
  3. Cabinet Decision No. 75 of 2023 — Administrative Penalties for Corporate Tax — official link

This article is general information, not formal tax advice. Regulations change — always confirm your position with a qualified advisor.

FAQs

Frequently Asked Questions

Does every free zone company get 0% Corporate Tax?
No — only Qualifying Free Zone Persons, only on qualifying income, and only while all conditions (substance, audit, de minimis, TP) are met.
Is income from mainland customers qualifying?
Generally not — mainland sales usually fall outside qualifying income and count against your de minimis limit.
What happens if I breach the conditions?
QFZP status is lost for that year plus the next four — all income taxed at 9% for five years.
Are audited accounts really mandatory?
Yes, for every QFZP regardless of size. We arrange the audit and the qualifying income assessment together.

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