The Headline: 9% Corporate Tax Applies to Free Zones

The UAE Corporate Tax Law applies to all UAE businesses including free zone companies. The 9% rate applies to taxable income above AED 375,000. However, free zone companies can qualify for a 0% rate on "qualifying income" if they meet specific conditions.

What is a Qualifying Free Zone Person?

A free zone company is a "Qualifying Free Zone Person" (QFZP) and eligible for 0% tax on qualifying income if: (1) It maintains adequate substance in the free zone (real office, real staff, real activities), (2) Its qualifying income comes from eligible activities, (3) It does not earn more than 5% of revenue or AED 5 million from non-qualifying (mainland) activities, (4) It complies with UAE transfer pricing rules.

Qualifying vs Non-Qualifying Income

Qualifying income (0% tax): income from transactions with other free zone businesses, export income, income from qualifying activities like fund management, ship operations, HQ services, financing. Non-qualifying income (9% tax): income from transactions with UAE mainland businesses that exceed the de minimis threshold, passive income in some circumstances, certain real estate income.

Practical Implications for SMEs

Most small free zone businesses earning under AED 375,000/year pay zero tax regardless. For businesses earning above AED 375,000: if you mainly serve international or free zone clients, you may qualify for 0% on most income. If you have significant mainland UAE clients, some income may be taxable at 9%.

Accounting and Compliance Requirements

All free zone companies subject to UAE Corporate Tax must: (1) Register with the Federal Tax Authority (FTA), (2) Maintain proper accounting records, (3) File annual corporate tax returns, (4) Larger businesses (revenue > AED 50M) need audited financials. Most small free zone businesses can manage compliance with a UAE accountant for AED 3,000–8,000/year.