Guide
Free zone corporate tax in the UAE: the 0% qualifying income rule
Updated
The most common misreading of UAE corporate tax is that a free zone licence means no tax. Free zone companies are taxable persons; the 0% applies to a defined slice of their income.
Free zone companies are in scope
The Ministry of Finance is direct about this: juridical persons established in a UAE free zone are within the scope of corporate tax as taxable persons and must comply with the requirements of the Corporate Tax Law. A free zone person that meets the conditions to be a Qualifying Free Zone Person can then benefit from a 0% rate on its Qualifying Income (Ministry of Finance).
What Article 3(2) actually says
Corporate tax is imposed on a Qualifying Free Zone Person at 0% on Qualifying Income, and at 9% on taxable income that is not Qualifying Income under Article 18 and the Cabinet decisions made under it. Read the two clauses of Article 3 side by side and one point stands out: the AED 375,000 threshold appears in clause 1 and is not repeated in clause 2.
| Position | 0% applies to | 9% applies to |
|---|---|---|
| Standard taxable person | Taxable income up to AED 375,000 | Taxable income above AED 375,000 |
| Qualifying Free Zone Person | Qualifying Income, with no cap | Taxable income that is not Qualifying Income |
Registration still applies
All taxable persons including free zone persons must register for corporate tax and obtain a corporate tax registration number, and file a return for each tax period within nine months of the end of that period.
What Qualifying Income is
Qualifying Income is defined by Article 18 of the Corporate Tax Law and by Cabinet decisions made under it, which set out qualifying activities, excluded activities and a de minimis allowance for non-qualifying revenue. Because those decisions have been reissued and amended, we do not restate the current lists here: check the Federal Tax Authority's corporate tax guides and public clarifications for the version applying to your tax period, and get the classification advised rather than assumed.
A Qualifying Free Zone Person cannot elect Small Business Relief. If your free zone company's revenue is under AED 3 million, the two routes are alternatives, not a stack.