Guides / Corporate tax
Corporate tax for free zone companies
Free zone does not mean tax free. It can mean 0% on qualifying income, if you meet six conditions.
Free zone companies are inside UAE Corporate Tax. They register and file like everyone else. What changes is the rate on some income.
The two regimes
- Standard: 0% on taxable income up to AED 375,000 and 9% above.
- Qualifying Free Zone Person (QFZP): 0% on qualifying income and 9% on taxable income that is not qualifying. A QFZP does not get the AED 375,000 0% band on its non-qualifying income.
The conditions to be a QFZP
From the Federal Tax Authority's Free Zone Persons guide, a free zone company must:
- maintain adequate substance in a free zone (its core income-generating activities happen there);
- derive qualifying income;
- not have elected to be taxed under the standard rules;
- comply with the arm's length principle and transfer pricing documentation;
- prepare and maintain audited financial statements, whatever its revenue;
- meet the de minimis test: non-qualifying revenue no more than the lower of AED 5,000,000 or 5% of total revenue.
Fail the de minimis test and the company is taxed under the standard rules for that tax period and the next four.
What this means when choosing a zone
The 0% rate is about what you earn and from whom, not which zone you pick. Selling services to mainland customers is usually not qualifying income. Budget for audited accounts from year one if you plan to claim QFZP status.
Sources: FTA, Corporate Tax Guide: Free Zone Persons; FTA Corporate Tax.
Questions
Do free zone companies pay corporate tax?
They are subject to UAE Corporate Tax. A Qualifying Free Zone Person pays 0% on qualifying income and 9% on other taxable income.
What is the de minimis rule?
Non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of total revenue. Otherwise the company loses QFZP status for that tax period and the next four.
Checked 18 October 2026. General information, not legal or tax advice.