Two rates for free zone companies
A free zone company that is a Qualifying Free Zone Person (QFZP) pays 0% Corporate Tax on its qualifying income and 9% on other taxable income. A free zone company that is not a QFZP is taxed like a mainland company.
The conditions
- Maintain adequate substance in the free zone: real staff, premises and activity.
- Earn qualifying income from qualifying activities.
- Stay within the de minimis limit for non-qualifying revenue.
- Comply with transfer pricing rules and documentation.
- Prepare audited financial statements.
- Not elect to be taxed under the standard regime.
The de minimis limit
Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower. Going over the limit is one of the most common ways free zone companies lose QFZP status.
If a company fails a condition, it loses QFZP status for that tax period and the following four. Five years at 9% instead of 0% is a significant cost.
Small Business Relief is not available
Qualifying Free Zone Persons cannot elect for Small Business Relief. A small free zone company should compare the two routes carefully before deciding how to structure its activities.
What to review every year
- Whether each revenue stream is qualifying or non-qualifying.
- Transactions with mainland customers.
- Related party pricing and documentation.
- Evidence of substance in the free zone.
Call or WhatsApp us on +971 50 512 4558 to talk it through with our team.
This article is general information based on UAE rules as of November 2026 and is not tax advice. Rules change, so please WhatsApp us or call +971 50 512 4558 about your situation.