Free Zone Corporate Tax in UAE

A Complete Guide for Businesses

With the UAE’s corporate tax framework now in effect, Free Zone Corporate Tax has become a critical consideration for businesses. Companies in Free Zones—if recognized as Qualifying Free Zone Persons (QFZPs)—can benefit from a 0% corporate tax rate on qualifying income. This blog explores what that means, eligibility, and how AM Audit supports your tax-efficient strategy.

What Is Free Zone Corporate Tax?

The UAE’s corporate tax law applies to Free Zone companies but offers significant incentives. Qualifying Free Zone Persons (QFZPs) can enjoy a 0% rate on specific “qualifying income,” while non-qualifying income is taxed at 9%. This distinction is crucial for Free Zone entities aiming to optimize their tax liabilities. 

Eligibility for 0% Corporate Tax

To qualify, Free Zone companies must:

  • Derive qualifying income—such as intra-Free Zone transactions, export services, or specified activities under Cabinet Decision No. 139 of 2023.
  • Meet economic substance requirements, including localized assets, qualified employees, and meaningful operational expenditures.
  • Adhere to transfer pricing compliance, with proper documentation reflecting arm’s-length dealings.
  • Ensure non-qualifying income doesn’t exceed AED 5 million or 5% of total revenue—whichever is lower.
  • Maintain audited financial statements and proper CT registration and filing within 9 months of the tax period’s end

What Tax Rate Applies?

  • 0% corporate tax applies on eligible income for QFZPs.

  • Any non-qualifying income, or income generated through a mainland or foreign permanent establishment, is taxed at 9%

Why Choose AM Audit?

At AM Audit, we specialize in guiding Free Zone companies through the complex web of corporate tax compliance. Our services include:

  • Client-ready assessments to determine QFZP eligibility.

  • Documentation preparation to meet economic substance and transfer pricing standards.

  • Accurate CT registration and timely filing.

  • Full representation and support in dealings with the Federal Tax Authority (FTA).

With our expertise, you’ll secure tax advantages while remaining fully compliant across all government frameworks.

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Frequently Asked Questions

What is Free Zone Corporate Tax in the UAE?

Free Zone Corporate Tax refers to the application of the UAE Corporate Tax Law to businesses registered in Free Zones. Qualifying Free Zone Persons (QFZPs) can enjoy a 0% corporate tax rate on qualifying income, while non-qualifying income is taxed at 9%.

To be considered a Qualifying Free Zone Person, your company must:

  • Earn Qualifying Income (as defined by Cabinet Decision No. 139 of 2023)

  • Meet economic substance requirements

  • Comply with transfer pricing rules

  • Keep non-qualifying income below AED 5 million or 5% of total revenue

  • Maintain audited financial statements

Qualifying income generally includes transactions with other Free Zone entities, certain export services, and activities listed under UAE law. Mainland UAE income is usually taxed at 9% unless it meets specific qualifying criteria.

Yes. All Free Zone companies—whether qualifying for the 0% rate or not—must register with the Federal Tax Authority (FTA) and file corporate tax returns annually.

Income from mainland activities is typically subject to 9% corporate tax, unless it falls under the scope of qualifying income or is subject to a special exemption under UAE law.

If you fail to meet the qualifying criteria, all your taxable income will be subject to the 9% corporate tax rate for that period.

You must file your corporate tax return within 9 months of the end of your financial year. For example, if your year ends on 31 December, your return is due by 30 September of the following year.

We provide:

  • Eligibility assessment for the 0% tax rate

  • Full corporate tax registration and return filing

  • Guidance on qualifying income

  • Compliance with economic substance and transfer pricing rules

  • Representation during FTA audits

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