Tax Guide

Updated February 2026

UAE Corporate Tax for Free Zone Companies

"Tax-free" is no longer accurate. Here is exactly how the 9% corporate tax works, who qualifies for 0%, and what every free zone company needs to file.

The UAE introduced corporate tax in June 2023 at 9% on profits above AED 375,000. Free zone companies can still pay 0% — but only on qualifying income, and only if they meet strict criteria. The rules are more nuanced than most free zone marketing suggests.

UAE Corporate Tax Rates at a Glance

Up to AED 375,000

All businesses

Above AED 375,000

Standard rate

Qualifying income

QFZP free zone companies

The QFZP Exemption: How Free Zone Companies Pay 0%

Qualifying Free Zone Person (QFZP) status is the mechanism that preserves the 0% tax rate for free zone companies. It is not automatic — your company must meet all of the following criteria in every tax period:

QFZP Requirements

1. Derive qualifying income. Income from transactions with persons outside the UAE, with other free zone companies, or from certain passive income (dividends, interest, royalties from non-related parties).
2. Maintain adequate substance. Have employees, assets, and expenditure proportionate to your business activities in the UAE. No shell companies.
3. Comply with transfer pricing rules. Transactions with related parties must be at arm's-length prices. Maintain transfer pricing documentation.
4. Prepare audited financial statements. Annual audit is mandatory for QFZP status, regardless of zone requirements.
5. Not elect out. You must not have elected to be taxed at the standard 9% rate.

The De Minimis Rule: When 0% Becomes 9%

This is the rule that catches most people off guard. Even if you are a QFZP, you can earn some non-qualifying revenue (typically mainland-sourced income). But if that revenue exceeds the de minimis threshold, you lose the 0% rate on all your income for that tax period.

De minimis threshold

Non-qualifying revenue must not exceed the lower of:

of total revenue

AED 5M

absolute cap

Example: If your total revenue is AED 2 million and AED 120,000 comes from mainland UAE clients, that is 6% — above the 5% threshold. You lose the 0% rate on your entire AED 2 million. Plan your revenue streams carefully.

What Counts as Qualifying vs Non-Qualifying Income

Qualifying (0%)	Non-Qualifying (9%)
Income from clients outside the UAE	Income from mainland UAE clients
Transactions with other free zone companies	Sales to individuals in the UAE
Income from branches in foreign jurisdictions	Income from mainland branches
Dividends and capital gains (conditions apply)	Income from certain excluded activities
Ship and aircraft management	Real estate not located in the free zone
Fund management meeting conditions	Income from banking/insurance/finance (unless regulated)

VAT: 5% on Most Goods and Services

Value Added Tax (VAT) at 5% applies to most goods and services in the UAE. It is separate from corporate tax and applies to both free zone and mainland companies.

Key VAT rules

Mandatory registration: When annual taxable supplies exceed AED 375,000
Voluntary registration: Available above AED 187,500
Filing frequency: Quarterly returns through the FTA portal
Zero-rated: Exports outside the GCC, international transport, first sale of residential property, certain healthcare and education
Exempt: Residential rent, bare land, local public transport, certain financial services
Free zone to free zone: Transactions between companies in designated zones are not subject to VAT (treated as outside UAE for VAT purposes)

Filing Deadlines & Compliance

Corporate tax registration Within 3 months of fiscal year start Mandatory for ALL UAE businesses, including free zone

Tax return filing 9 months after fiscal year end E.g., fiscal year ending Dec 2025 → file by Sep 2026

Tax payment 9 months after fiscal year end Same deadline as filing. Late payment incurs penalties.

Transfer pricing documentation Maintain throughout year Required for transactions with related parties

Annual audit Varies by zone (typically within 6 months of year end) Mandatory for QFZP status. Cost: AED 3,000-15,000.

VAT return Quarterly (28 days after period end) Mandatory if registered. Late filing: AED 1,000 first offence.

E-invoicing February 2026 (mandatory) All UAE businesses must issue compliant e-invoices.

ESR notification Within 6 months of fiscal year end Economic Substance Regulations — annual filing for relevant activities.

Practical Tax Planning Tips

Separate qualifying and non-qualifying income

Track revenue streams carefully. If you serve both international and mainland clients, monitor the de minimis threshold monthly — not annually.

Budget for audit costs from day one

QFZP status requires audited financials. Budget AED 3,000-5,000 for a simple audit, AED 10,000-15,000 for complex multi-activity companies.

Registration is mandatory even at zero income. Late registration incurs penalties. Do it when you receive your trade license.

Consider voluntary VAT registration

If you plan to reach AED 375,000 in taxable supplies within 12 months, register early. This lets you reclaim input VAT on setup costs.

Keep proper transfer pricing documentation

If you have related entities (parent company, subsidiaries), maintain arm's-length pricing documentation. The FTA will request this during audits.

Disclaimer: This guide provides general information about UAE corporate tax as of February 2026. Tax regulations change frequently. This is not tax advice. Consult a qualified UAE tax advisor for guidance specific to your situation. The Federal Tax Authority (FTA) website at tax.gov.ae is the official source for current regulations.

Frequently Asked Questions

Do UAE free zone companies pay corporate tax?

It depends. Free zone companies that qualify as Qualifying Free Zone Persons (QFZP) pay 0% on qualifying income — income from international clients, intra-zone transactions, and certain financial activities. Non-qualifying income is taxed at 9% above AED 375,000. All free zone companies must register for corporate tax regardless of their income level.

What is a Qualifying Free Zone Person (QFZP)?

A QFZP is a free zone company that meets specific criteria set by the UAE Ministry of Finance: it must derive qualifying income (international/intra-zone), maintain adequate substance in the UAE, comply with transfer pricing rules, prepare audited financial statements, and not elect to be taxed at the standard rate. QFZP status is not automatic — you must ensure ongoing compliance.

What is the de minimis rule for free zone companies?

If your non-qualifying revenue (typically mainland-sourced income) exceeds 5% of total revenue OR AED 5 million (whichever is lower), you lose the 0% rate on ALL income for that tax period. This means even a small amount of mainland revenue can trigger full 9% taxation. Planning your revenue streams carefully is critical.

When do I need to register for UAE corporate tax?

All UAE businesses must register for corporate tax, including free zone companies with zero income. Registration is through the Federal Tax Authority (FTA) EmaraTax portal. You must register within the timeframe specified by the FTA — typically within 3 months of your fiscal year starting. The first tax return is due 9 months after the end of your fiscal year.

What is the UAE VAT rate and when do I register?

UAE VAT is 5% on most goods and services. Mandatory registration is required when annual taxable supplies exceed AED 375,000. Voluntary registration is available above AED 187,500. File quarterly returns through the FTA portal. Some supplies are zero-rated (exports, international transport) or exempt (residential rent, bare land). Free zone-to-free zone transactions in designated zones are not subject to VAT.

Do I need an annual audit in a free zone?

Most major free zones require annual audited financial statements: DMCC, JAFZA, DAFZA, RAKEZ, DIFC, and ADGM all mandate audits. Costs range from AED 3,000 for simple companies to AED 15,000+ for complex operations. Even where not mandatory for the zone, QFZP status requires audited financials — so if you want the 0% rate, you need an audit.

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Last updated: February 2026. Consult a UAE tax advisor for guidance specific to your business.