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How corporate tax works for Free Zone companies in the UAE

For years, Dubai marketed itself on a simple message: no tax. That era ended in June 2023, when the UAE introduced a federal corporate tax, and any serious guide has to start there. The good news is twofold: there is still no personal income tax on salaries in the UAE, and free zone companies can still reach a 0% corporate rate, but only on certain income and only if they meet specific conditions. This guide explains how the rules work and what they require of you. The authoritative source is the Federal Tax Authority at tax.gov.ae.

The basics: 0% and 9%

UAE corporate tax applies at 0% on taxable income up to AED 375,000 and 9% above that threshold. Free zone companies are inside the system, not outside it: a company that qualifies as a Qualifying Free Zone Person (QFZP) pays 0% on its qualifying income, while its other taxable income is taxed at 9%. The AED 375,000 threshold does not apply to that income. A free zone license alone does not deliver the 0% rate; the conditions do.

What it takes to be a Qualifying Free Zone Person

The main conditions, set by the Federal Tax Authority, are:

  • Maintain adequate substance in the free zone, meaning real activity, premises and people rather than a mailbox.
  • Derive qualifying income, with only a limited share of revenue from non-qualifying sources.
  • Comply with transfer pricing rules and documentation.
  • Prepare audited financial statements.
  • Not have elected to be taxed at the standard rates instead.

Fail the conditions, and the company is taxed as a normal business. The details of each condition are defined in the law and the FTA guides, and they change; check the current versions before relying on them.

What counts as qualifying income

Broadly, qualifying income covers transactions with other free zone persons and income from a defined list of qualifying activities, while income from excluded activities and most mainland business is taxed at 9%. Where your revenue actually comes from therefore decides most of your tax position, and that is a question about your business model, not about your license.

The duties that come with it

Corporate tax also brought obligations that did not exist before: registering for corporate tax, keeping proper accounts, preparing the audited financial statements the QFZP status requires, and filing returns on time. Budget for the compliance work from day one; losing the 0% rate over paperwork is an expensive way to save on accounting.

Personal income tax is a separate question

The UAE levies no personal income tax on salaries, and that has not changed. What the UAE does not tax, your home country still might: your personal tax position depends on your home country’s residency rules and your own situation, so have it confirmed by your own tax adviser before you build plans on it.

Dubai Tradeshore assists with the setup itself, from choosing the free zone to registration and bank account assistance. For how the rules apply to your specific numbers, we recommend involving a tax adviser early, and we are happy to work alongside yours.