UAE CT Taxable Income Calculation for Free Zone Companies 2026
Calculating UAE Corporate Tax (CT) taxable income for free zone companies requires understanding which income is qualifying (0% CT) and which is non-qualifying (standard 9% CT). This guide walks through the taxable income calculation for UAE QFZP and non-QFZP free zone companies in 2026.
Step 1: Determine QFZP Status
First, determine if your free zone company qualifies as a Qualifying Free Zone Person (QFZP):
- Maintain adequate substance in the UAE free zone
- Derive qualifying income (defined in Ministerial Decision No. 139/2023)
- Have not elected to be subject to standard UAE CT rates
- Comply with UAE CT transfer pricing rules
- Non-qualifying revenue is less than AED 5 million (5% de minimis) OR less than 5% of total income
Step 2: Identify Qualifying Income
Qualifying income (taxed at 0%) includes:
- Income from transactions with other free zone persons (B2B within UAE free zones)
- Income from qualifying activities with non-free-zone persons (specific listed activities: manufacturing, holding qualifying participations, managing ships, fund management, headquarters services)
- Income from qualifying intellectual property
Step 3: Identify Non-Qualifying Income
Non-qualifying income (taxed at 9% above AED 375,000 threshold) includes:
- Income from transactions with UAE mainland customers
- Income from activities not on the qualifying activities list
- Passive income from non-UAE sources not meeting qualifying IP or participation conditions
Step 4: Calculate Accounting Profit
Start with accounting profit/loss per IFRS or equivalent financial statements. Adjust for:
- Disallowable expenses: personal expenses, entertainment (50% limitation), interest expense (above thin capitalisation limits), fines and penalties
- Exempt income: dividends from qualifying participations, capital gains from qualifying share disposals
- Tax depreciation: capital allowances per UAE CT rules may differ from accounting depreciation
Step 5: Apply QFZP Split
If QFZP: separate taxable income into qualifying (0% CT) and non-qualifying (9% CT) portions based on income allocation. Non-qualifying income above AED 375,000: taxed at 9%. Non-qualifying income below AED 375,000: within small business relief threshold (0% CT if total taxable income ≤ AED 375,000 and revenue ≤ AED 3 million — applicable to non-QFZP taxable persons).
Step 6: Apply Losses
UAE CT losses: prior year losses can be carried forward indefinitely (no time limit) to offset future years’ taxable income. Loss transfers within a UAE CT Tax Group are permitted. Losses from qualifying (0% CT) activities cannot offset non-qualifying income for CT purposes.