- +971506544119
- Info@czaccounting.com
The UAE’s Corporate Tax Law provides significant tax advantages for businesses operating in Free Zones. A Free Zone Person may benefit from a 0% Corporate Tax rate on qualifying income, making Free Zones an attractive destination for both local and international companies.
This guide explains the conditions, qualifying criteria, and compliance requirements for Free Zone Persons, helping businesses fully leverage the UAE’s favorable tax framework while remaining compliant.
A Free Zone Person refers to any juridical entity (a legal company) established, incorporated, or registered in a UAE Free Zone.
This includes:
Free Zone authorities
Government-controlled entities operating within Free Zones
Branches of non-resident companies in a Free Zone (the branch is treated as a Free Zone Person; the parent company is considered a Foreign Permanent Establishment)
UAE companies with Free Zone branches (the branch is the Free Zone Person; the parent company is classified as a Domestic Permanent Establishment)
Note:
Individuals (natural persons) and unincorporated partnerships are not considered Free Zone Persons.
For corporate tax purposes, a Free Zone is a specially designated geographic area in the UAE that offers preferential tax treatment.
These zones are determined by Cabinet Decisions based on the Minister’s recommendation.
Important Distinction:
For VAT purposes, “Designated Zones” under Federal Decree-Law No. 8 of 2017 are considered Free Zones.
Businesses should consult their Free Zone Authority to confirm their Free Zone’s status under Corporate Tax laws.
To maintain 0% Corporate Tax benefits, a Free Zone Person must meet the following conditions:
Maintain adequate substance within the Free Zone (i.e., have real economic activities and sufficient resources).
Earn Qualifying Income from approved activities.
Not elect to be subject to the standard Corporate Tax regime.
Comply with the arm’s length principle for related party transactions.
Maintain proper transfer pricing documentation.
Prepare and submit audited financial statements annually.
Ensure that non-qualifying income does not exceed AED 5 million or 5% of total revenue (whichever is lower).
Failure to meet these conditions may result in losing the Qualifying Free Zone Person status and being taxed at the standard 9% Corporate Tax rate.
Qualifying Income typically includes:
Income derived from transactions with other Free Zone Persons (excluding Excluded Activities).
Income from transactions with non-Free Zone Persons related to Qualifying Activities.
Any other income allowed under Cabinet decisions and Ministerial guidelines.
The UAE’s Corporate Tax Law defines Qualifying Activities, which may include:
Manufacturing or processing of goods
Holding of shares and other securities
Ownership, management, and operation of ships
Reinsurance services
Fund management services
Wealth and investment management services
Headquarter services to related parties
Treasury and financing services to related parties
Logistics services
Note: The list of qualifying activities may be updated periodically by the UAE authorities, and businesses must stay informed to ensure continued compliance.
A Free Zone Person is a juridical entity incorporated, established, or registered within a UAE Free Zone. This includes branches of non-resident companies and UAE-based businesses with Free Zone branches.
A Qualifying Free Zone Person benefits from a 0% corporate tax rate on their Qualifying Income. Any non-qualifying income is taxed at the standard rate of 9%.
Qualifying Activities that are eligible for the 0% corporate tax rate include:
Manufacturing
Trading
Fund management
Logistics services
Reinsurance
And more, based on specific regulations.
If a Free Zone Person fails to meet the qualifying conditions, they will lose their 0% tax status and will be subject to the standard 9% corporate tax rate for at least the following four tax periods.
Qualifying Income includes:
Transactions with other Free Zone Persons
Revenue from Qualifying Activities
Income derived from the ownership of Qualifying Intellectual Property
No, only Designated Zones or those listed in the Cabinet Decision are treated as Free Zones for corporate tax purposes. Businesses should verify their specific status with their Free Zone Authority.
Yes, Free Zone Persons can choose to be taxed under the standard 9% tax rate, but doing so will result in them losing their eligibility for the 0% Corporate Tax rate on qualifying income.
Yes, Free Zone Persons are required to:
Register with the Federal Tax Authority (FTA)
File audited financial statements
Submit tax returns on time
Maintain records for at least 7 years
Our services are suitable for all types of businesses from startups and SMEs to large enterprises. Whether you’re in retail, hospitality, professional services, or any other sector, we tailor our solutions to meet your specific financial and regulatory needs.
We provide financial reports on a monthly, quarterly, and annual basis, depending on your preference and business requirements. These reports include income statements, balance sheets, and cash flow statements, giving you a clear view of your financial performance.
Yes, all our bookkeeping and accounting services are fully VAT-compliant. We manage VAT calculations, returns, and timely submissions to the Federal Tax Authority (FTA), ensuring your business stays compliant and avoids penalties.
Absolutely. We work with a wide range of accounting software, including QuickBooks, Zoho Books, Xero, Tally, and more. Our team can seamlessly integrate with your current systems or help you migrate to a more efficient platform if needed.
Providing expert accounting, tax, and compliance services tailored to help UAE businesses grow, stay compliant, and make smarter decisions.
Don’t miss our future updates! Get Subscribed Today!
©2025. The Capital Zone. All Rights Reserved.