Guide
UAE corporate tax free zone rules: 0% on qualifying income
Updated
The most common misreading of UAE corporate tax: a free zone licence means no tax. Free zone companies are taxable persons; 0% covers a defined slice of their income.
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How this calculator works
- Article 3 of the Corporate Tax Law imposes corporate tax at 0% on the portion of taxable income not exceeding the amount set by Cabinet decision. It imposes 9% on taxable income above it (Federal Decree-Law No. 47 of 2022).
- That amount is AED 375,000, fixed by Cabinet Decision No. 116 of 2022, and it applies once per taxable person for the tax period whether or not the person carries on several businesses (Ministry of Finance). Splitting a business artificially to multiply the threshold is treated as a corporate tax advantage under the general anti-abuse rule.
- Small Business Relief treats an eligible resident person as having derived no taxable income. It applies where revenue is AED 3,000,000 or less in the relevant tax period and in every previous tax period.
- It must be elected in the tax return. A Qualifying Free Zone Person, or a member of a multinational group with consolidated revenue above AED 3.15 billion, cannot elect it (Federal Tax Authority).
- Small Business Relief has an end date. The Ministry of Finance states that the AED 3 million revenue threshold applies to tax periods starting on or after 1 June 2023. It says the threshold will only continue to apply to subsequent tax periods that end before or on 31 December 2026 (Ministry of Finance).
- Check the position for any tax period ending after that date before relying on the relief.
- For a Qualifying Free Zone Person, Article 3(2) charges 0% on Qualifying Income and 9% on taxable income that is not Qualifying Income. The AED 375,000 threshold sits in Article 3(1) and is not repeated in Article 3(2), so the calculator applies no 0% band to a free zone person's non-qualifying income.
- Where Small Business Relief is elected, other exemptions, reliefs and deductions are not available for that tax period, and losses and disallowed net interest expenditure are affected. The calculator shows tax of nil and does not model those consequences.
- Large multinational groups face a separate charge: the UAE domestic minimum top-up tax, using a minimum rate of 15% (Ministry of Finance, Cabinet Decision No. 142 of 2024). This calculator does not model it.
- The top-up tax applies to members of groups with annual global revenues of EUR 750 million or more in at least two of the four preceding financial years. It covers financial years starting on or after 1 January 2025.
- The calculator starts from taxable income you supply. Arriving at taxable income from accounting profit is the hard part of a UAE corporate tax computation and involves exempt income, interest limitation, transfer pricing and other adjustments.
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. They must comply with the requirements of the Corporate Tax Law.
A free zone person meeting 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. It is imposed 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. They must also file a return for each tax period within nine months of the end of that period.
What free zone qualifying income is
Qualifying Income is defined by Article 18 of the Corporate Tax Law and by Cabinet decisions made under it. Those decisions 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. 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.