UAE Free Zone Taxation

Yes. Under Federal Decree-Law No. 47 of 2022, every company incorporated in a UAE Free Zone—regardless of revenue level, operational activity, or qualifying status—must register for Corporate Tax and obtain a Tax Registration Number (TRN) with the Federal Tax Authority (FTA).

To qualify as a Qualifying Free Zone Person (QFZP) eligible for the 0% rate, an entity must: (1) maintain adequate economic substance in the Free Zone, (2) derive Qualifying Income from qualifying activities, (3) not have elected to be subject to standard 9% tax, (4) comply with transfer pricing rules, (5) prepare audited financial statements, and (6) satisfy the de minimis requirements.

The de minimis rule allows a Free Zone entity to retain its QFZP status if non-qualifying revenue does not exceed the lower of 5% of total revenue or AED 5,000,000 in a given tax period. If non-qualifying revenue breaches this cap, all income becomes subject to the standard 9% tax rate.

If a Free Zone entity fails to meet any of the qualifying conditions or breaches the de minimis threshold, it loses its QFZP status and cannot benefit from the 0% tax rate for the current tax period and the subsequent four tax periods (five consecutive tax periods total).

Yes. Maintaining audited financial statements prepared in accordance with International Financial Reporting Standards (IFRS) is a mandatory statutory condition under Article 18 of the Corporate Tax Law for any Free Zone business claiming the 0% tax benefit.

Transactions with mainland UAE businesses are generally classified as non-qualifying income (taxable at 9%), unless the transaction relates to designated qualifying activities or involves physical goods located in a Designated Zone for VAT/customs purposes.

Mainland companies pay 0% on taxable income up to AED 375,000 and 9% on income exceeding AED 375,000, or may elect for Small Business Relief if revenues are under AED 3 million. Qualifying Free Zone persons, by contrast, pay 0% on all Qualifying Income without an upper monetary ceiling, but must satisfy strict substance and activity conditions.

The CapitalZone provides complete Free Zone tax advisory, including Qualifying Income eligibility reviews, de minimis mathematical testing, economic substance assessments, IFRS statutory audits, and corporate tax return filings on EmaraTax. For comprehensive service scope, view our Free Zone Corporate Tax Assessment Services.