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Co-Founder & CEO movingo
Editor
Author
Iakov Kukushkin
Copywriter, Journalist
Feb 25, 2026
Free Zones in the UAE account for approximately 70% of the country's total trade. Many companies establish offices here to benefit from the tax-free environment. However, it is only simple at first glance, and many pitfalls need to be kept in mind.
This article gives you a detailed overview of Corporate Tax for companies operating in Free Zones. It explains the specific tax regulations and other important aspects of taxation in these zones.
This article gives you a detailed overview of Corporate Tax for companies operating in Free Zones. It explains the specific tax regulations and other important aspects of taxation in these zones.
- What is the Free Zone Corporate Tax regime in UAE?
- What Is a Qualifying Free Zone Person (QFZP)?
- Qualifying income explained
- Qualifying activities and excluded activities
- What is a Free Zone company in the UAE?
- Corporate Tax rate for Free Zone companies
- Corporate Tax in UAE: Free Zone vs Mainland
- What is the De Minimis requirement?
- Corporate Tax registration and filing
- How Corporate Tax benefits Free Zone businesses
- How moving to Mainland affects Corporate Tax
- How movingo can help you?
- Corporate Tax for Free Zone companies FAQ
Key Takeaways
1
0% Rate: Exclusive to Qualifying Free Zone Persons (QFZP) on Qualifying Income. All other income is taxed at 9%.
2
No Threshold: Unlike Mainland companies, Free Zone firms do not get the AED 375,000 tax-free bracket for non-qualifying income.
3
Audit is Mandatory: You cannot claim the 0% rate without audited financial statements from a UAE-registered auditor.
4
De Minimis Rule: You can earn up to 5% of total revenue (or AED 5M, whichever is lower) from "excluded" activities without losing your status.
5
Registration Deadline: By 2026, all companies must be registered. Failure to do so results in a AED 10,000 fine.
6
5-Year Penalty: If you breach the QFZP requirements, you lose the 0% benefit for the current year and the next 4 years.
What is the Free Zone Corporate Tax regime in UAE?
Corporate Tax (CT) in the UAE is a direct tax imposed on a company's taxable income. It is calculated by subtracting all expenses from the company's income or profit. The standard rate is 9%, but in certain conditions it can be 0%. There are also special Free Zones where you can receive a full tax break for the next 50 years and enjoy a simplified incorporation process. The main condition for receiving a tax break in Free Zones is meeting the requirements of the Qualified Free Zone Person (QFZP).
UAE Corporate Tax 2026 overview: 0% and 9% tax rates, registration deadlines for companies and natural persons, and return filing rules in the Emirates.
What Is a Qualifying Free Zone Person (QFZP)?
Qualifying Free Zone Person status allows businesses to enjoy preferential operating conditions in the Free Zone. To get this status, you need to meet a few requirements:
-
Registration with a Free Zone authority
You need to get your business registered with the Free Zone authorities and make sure you have a solid presence in the country. -
Qualifying activities and earning qualifying income
The CT law defines qualifying activities that your company should be performing. -
Complying with the UAE's transfer pricing rules
These rules ensure that affiliated companies conduct business at fair prices. -
Arm's length principle
If you conduct business with your sister companies, you must charge them market prices. You cannot offer "friend prices" to hide profits. -
Audited books
You must have your financials signed off on by a UAE-registered auditor every year.
💡 Note that the 9% tax is applied to taxable income that does not constitute qualifying income.
Qualifying income explained
- Income from other Free Zone companies
If you sell services to another company within the Free Zone and do not break the rules, there is 0% tax.
- Income from qualifying activities
Even if you're selling to other countries or the UAE, it can still be 0% tax if your activity is on the "approved list.”
Some examples
- Qualifying income: A logistics company in JAFZA is moving goods for a client in Germany, and the tax rate is 0%.
- Non-qualifying income: A consulting firm in a Free Zone providing HR services to a retail shop in a Dubai Mall (Mainland). (9% Tax).
List of UAE Qualified Activities for 0% Corporate Tax: manufacturing, shipping, fund management, and logistics services under Ministerial Decision No. 265.
Let's check if your services meet the requirements of qualifying income.
Qualifying activities and excluded activities
Qualifying: Manufacturing, shipping, reinsurance, fund management, logistics, and "Headquarter services" (managing your other branches).
Excluded: Banking, regular insurance, and selling directly to "natural persons" (individuals/consumers).
Excluded: Banking, regular insurance, and selling directly to "natural persons" (individuals/consumers).
💡 Note: Trading commercial property with other Free Zone companies is usually tax-free (0%), but selling residential property or dealing with mainland residents is typically taxed at 9%.
What is a Free Zone company in the UAE?
The Free Zone company is a company registered in one of more than 40 specialized economic zones in the UAE, such as the DMCC, the ADGM, and IFZA. In addition to tax and compliance benefits, there are some restrictions for such a company. For instance, businesses can only operate within the Free Zone and conduct B2B transactions within the UAE or engage in international markets.
Following these rules is very important, as it can help you avoid serious traffic and legal issues. If you would like to learn more about doing business in free zones or want to check if your company is following the rules, please follow the link below. Our team will advise you and help you find the best solution.
Corporate Tax rate for Free Zone companies
It's quite simple:
- 0% on all Qualifying Income.
- 9% on everything else.
UAE Corporate Tax calculation guide: step-by-step submission process, accounting basis choice (accrual vs cash), and visual breakdown of revenue, expenses, and 9% tax on income.
Note:
Unlike mainland companies, a Qualifying Free Zone Person does not receive the "first AED 375,000 at 0%" tax rate for their non-qualifying income. If you earn AED 100,000 from a mainland client, you will have to pay 9% tax on all of it.
Unlike mainland companies, a Qualifying Free Zone Person does not receive the "first AED 375,000 at 0%" tax rate for their non-qualifying income. If you earn AED 100,000 from a mainland client, you will have to pay 9% tax on all of it.
Corporate Tax in UAE: Free Zone vs Mainland
The rules for a Free Zone company are quite different from a Mainland (on-shore) company.
What is the De Minimis requirement?
The government understands that it is difficult to have 100% "clean" income. If you earn some money from "unacceptable" (excluded) activities, you will not lose your 0% status, as long as this "unacceptable" income remains under:
- 5% of your total revenue
- OR
- AED 5,000,000 (whichever is lower).
Comparison table of 0% and 9% UAE Corporate Tax for Free Zones, featuring the De Minimis rule (5% revenue threshold), substance requirements, and mandatory IFRS financial audits.
Corporate Tax registration and filing
By early 2026, the registration process will be mostly complete. If you have not registered yet, there is a risk of incurring a late fee of AED 10,000. The deadline for submitting your tax return is nine months after the end of your financial year.
How Corporate Tax benefits Free Zone businesses
It may sound strange, but the introduction of a formal tax system in the UAE is actually seen as a "level-up" for the country. With this new system in place, UAE companies have been "whitelisted" globally, making it easier for them to open international bank accounts and attract foreign investment. In 2026, it will be much simpler for companies to prove their compliance with a transparent and regulated tax system when seeking to do business internationally.
How moving to Mainland affects Corporate Tax
If you decide to open a branch in the mainland, things can get complicated. You will need to maintain two sets of records. The mainland branch will be subject to tax at the standard rate of 9% (with a AED 375,000 exemption), while your free zone office will continue to enjoy the 0% tax status — provided that the two operations do not affect each other's income streams.
How movingo can help you?
We can help you with any business-related task in Free Zones. Starting a company is no problem, and we can provide consulting on taxes and accounting. Visas, licenses, and other paperwork — we have solutions for all types of businesses, including freelancers.
We have already helped over 400 companies start their businesses in the Emirates. Why not discuss how we can assist you?
Corporate Tax for Free Zone companies FAQ
Yes, all Free Zone companies must register.
The tax rate is 0% on "qualifying income" and 9% on income that does not meet the qualifying criteria.
If your sales exceed AED 375,000, you need to register for VAT at 5%. Only certain Designated Zones have special exemptions for some goods, but most services are taxable.
Most companies pay 0% if they meet all the qualifying rules. However, if they fail to meet these rules, they pay the standard rate of 9%.
The main downsides are the restrictions on direct trade with the mainland UAE and the need for audited financial records to maintain tax benefits.
Exempt entities include the government, nonprofit organizations, some investment funds, and companies that extract natural resources like oil and gas.
Mainland company can do business anywhere in the UAE and with the government, but it pays 9% tax on income above AED 375. A free zone company is geographically limited, but it can access a 0% tax rate for international/inter-zone business activities.
No, while it still has a low tax environment with lots of incentives, it's now a regulated tax area with Corporate Tax and VAT.
Failure to register by the 2026 deadline typically results in a fine of AED 10,000.
Prices shift, but RAKEZ, Sharjah Publishing City, and IFZA continue to be among the most affordable options for startups.
Yes, but typically through a mainland distributor or local agent.
They lose the 0% rate and are taxed at 9% for the following 4 years.
To benefit from the 0% "qualifying" rate, you must have audited financial statements.
0% for qualifying income or small profits.
Yes, the DMCC is a popular choice for new companies and startups.
For the Mainland: Accounting profit - AED 375,000 x 9%. For Free Zones: Non-qualifying income x 9%. The full guide is here.
If your profit is below AED 375,000 for Mainland operations or if you are a qualifying free zone person, your minimum tax could be as low as AED 0.
