Guide · updated August 2026

Free zone corporate tax: the 0% rate has conditions

"Free zone" no longer means "tax free" by default. Since June 2023, a free zone company keeps 0% only as a Qualifying Free Zone Person (QFZP) — and only on qualifying income. Everything else is taxed at 9%, and the AED 375,000 threshold doesn't apply to QFZPs at all.

The QFZP conditions

Adequate substance in the free zone — real people, premises and spending proportional to the activity.
Qualifying income — see below.
Audited financial statements — mandatory, whatever your size.
Transfer pricing compliance — arm's-length dealing with related parties, documented.
No election to be taxed under the standard regime.

Fail any condition and you lose QFZP status for that year and the next four — the most expensive checkbox in the UAE.

What counts as qualifying income

Transactions with other free zone persons (where they're the beneficial recipient).
Qualifying activities even with mainland clients: manufacturing, goods processing, fund/wealth management, headquarters and treasury services, aircraft/ship financing and leasing, logistics, distribution from a designated zone, and related activities.
Income from excluded activities is never qualifying: dealings with individuals (with narrow exceptions), banking, insurance, most mainland real estate income.

The de minimis rule

A little non-qualifying revenue is tolerated: the lower of AED 5,000,000 or 5% of total revenue. Stay under it and your qualifying status survives; breach it and the entire year's income is taxed at 9%.

Most common SME mistake: a free zone consultancy invoicing mainland companies for services assumes it's "qualifying" — professional consultancy to mainland clients generally is not a qualifying activity. Check before you rely on 0%.

Practical checklist

Map each revenue stream: free-zone client vs mainland, activity by activity.
Estimate the split with the corporate tax calculator (Free Zone toggle).
Book the audit early — unaudited accounts alone disqualify you.
If most income is non-qualifying, compare regimes: standard 0%/9% with the AED 375K band can beat a failed QFZP position.

General information, not tax advice — free zone analysis is exactly where a licensed agent earns their fee. Get a quote.