Key takeaways
- A company registered in a UAE free zone is a taxable person under Federal Decree-Law No. 47 of 2022, so it must register for corporate tax and file a return even when it expects to pay nothing.
- A free zone company pays 0% corporate tax only on qualifying income, and only if it meets every condition of a Qualifying Free Zone Person (QFZP); everything else is taxed at 9%.
- A Qualifying Free Zone Person gets no AED 375,000 zero-rate band; the 9% rate applies from the first dirham of non-qualifying taxable income.
- Non-qualifying revenue above the lower of 5% of total revenue or AED 5,000,000 in a tax period removes QFZP status for that period and the next four tax periods.
- Free zone companies that invoice mainland customers for ordinary services will usually fail the qualifying income test, so the 0% rate is narrower than many setup brochures suggest.
Do free zone companies have to register for corporate tax?
Yes. The Ministry of Finance states that juridical persons established in a UAE free zone are taxable persons and must comply with the Corporate Tax Law, even where the 0% rate may apply to some of their income. That means registering on EmaraTax and filing a return within nine months of the end of each tax period.
Registration is not optional for a company that expects zero tax. The 0% rate is something you qualify for inside the system, not a way of staying outside it. Registration deadlines depend on when your licence was issued; check your deadline on EmaraTax and in FTA Decision No. 3 of 2024.
What tax rate does a free zone company pay?
A Qualifying Free Zone Person pays 0% on qualifying income and 9% on all other taxable income. A free zone company that is not a Qualifying Free Zone Person is taxed like any other business: 0% on the first AED 375,000 of taxable income and 9% above it (Cabinet Decision No. 116 of 2022).
| Company status | Rate on qualifying income | Rate on other taxable income | AED 375,000 zero-rate band |
|---|---|---|---|
| Qualifying Free Zone Person | 0% | 9% | Not available |
| Free zone person that is not a QFZP | 9% | 9% above AED 375,000 | Available |
The table shows why status matters in practice. A small free zone company earning AED 300,000 of non-qualifying profit would pay nothing if it were an ordinary taxable person (the band covers it), but would pay AED 27,000 at 9% if it were a Qualifying Free Zone Person with that same non-qualifying income. That example is hypothetical and ignores deductions; it exists to show the mechanics, and the FTA's free zone guide confirms that a QFZP gets no 0% band on the first AED 375,000.
What makes a company a Qualifying Free Zone Person?
A free zone company is a Qualifying Free Zone Person only if it meets all of the conditions in Article 18 of the Corporate Tax Law and the related decisions. According to the FTA's Free Zone Persons guide (May 2024), the conditions are:
- It is a juridical person registered in a free zone.
- It keeps adequate substance in the free zone: core activities carried out there, assets, full-time staff and operating spend.
- It earns qualifying income.
- It has not elected to be taxed under the standard rules.
- It follows the arm's length principle and keeps transfer pricing documentation.
- It prepares audited financial statements, whatever its revenue.
- It passes the de minimis test.
Failing any one condition, at any point in a tax period, removes the status from the start of that period and for the following four tax periods (Ministerial Decision No. 229 of 2025, Article 5).
What counts as qualifying income?
Qualifying income is income from transactions with other free zone persons that are the beneficial recipient, income from qualifying activities, and qualifying income from qualifying intellectual property (Cabinet Decision No. 100 of 2023). Income earned from mainland customers for activities that are not qualifying activities is not qualifying income.
The qualifying activities listed in Ministerial Decision No. 229 of 2025 are:
| Qualifying activity | Notes from the Ministerial Decision |
|---|---|
| Manufacturing and processing of goods or materials | Listed activity |
| Trading of Qualifying Commodities | Covers physical trading and related hedging; excluded if distribution, warehousing, logistics or inventory management revenue is 51% or more of revenue |
| Holding shares and securities for investment | Held for at least 12 months |
| Ownership and operation of ships in international transport | Listed activity |
| Reinsurance, fund management, wealth and investment management | Listed activities |
| Headquarter, treasury and financing services to related parties | Treasury and financing extended to own account |
| Financing and leasing of aircraft | Listed activity |
| Distribution of goods in or from a Designated Zone | Designated Zone only |
| Logistics services | Listed activity |
Excluded activities include banking, insurance (except reinsurance and headquarter services), most finance and leasing, and owning or exploiting immovable property outside narrow free zone commercial property cases. Transactions with natural persons are also excluded, with limited exceptions. Note that general consulting, marketing, e-commerce and most trading are not on the qualifying list.
AED 5,000,000: the cap on non-qualifying revenue in a tax period (or 5% of total revenue, whichever is lower) before a free zone company loses QFZP status for that period and four more. Source: Ministerial Decision No. 229 of 2025, Article 3, checked 25 October 2026.
How does the de minimis test work?
The de minimis test is met when non-qualifying revenue in a tax period does not exceed 5% of the company's total revenue or AED 5,000,000, whichever is lower (Ministerial Decision No. 229 of 2025, Article 3). Failing it costs the company QFZP status for the failing period and the next four.
Say a SHAMS company bills AED 4m a year, of which AED 300,000 comes from mainland clients for non-qualifying work. That is 7.5% of revenue, above the 5% limit, so the company fails the test even though the amount is far below AED 5,000,000. The lower of the two limits always governs, and for most SMEs that is the percentage.
If you'd rather not track these dates by hand, the free UAE compliance calendar lists your company's tax and compliance deadlines.
Can a free zone company trade with the mainland?
A free zone company can trade with mainland customers, but income from non-qualifying activities with non-free zone persons counts as non-qualifying revenue and feeds the de minimis test. Income attributed to a place of business outside the free zone (a domestic permanent establishment) is taxed at 9% and does not qualify for 0%.
Free zones differ in what licences and mainland access they allow, so confirm with your free zone authority what your licence permits before you invoice mainland clients.
What most guides don't tell you
- Audited financial statements are required. A Qualifying Free Zone Person must prepare audited financial statements regardless of revenue, so the 0% rate comes with an annual audit cost you should price in. Under Ministerial Decision No. 229 of 2025 the standard is Ministerial Decision No. 84 of 2025.
- Failing for one year can cost five. Because status is lost for the failing period and the next four, one mainland invoice batch that tips the de minimis test can move the entire company to the standard regime for five tax periods, so watch the ratio during the year, not at year end.
- Electing out is also a five period decision. A company can choose to be taxed under the standard rules (Article 19), and that choice also runs for the period and the four that follow. If your income is mostly non-qualifying, the AED 375,000 band may make electing out cheaper than staying in.
- The rules were reissued in 2025. Ministerial Decision No. 229 of 2025 replaced Ministerial Decision No. 265 of 2023 and states an effective date of 1 June 2023. The FTA guide published in May 2024 predates it, so check both when you read older commentary.
Which deadlines apply to your company?
Free zone status, return filing, audit and transfer pricing dates all run on different clocks. The free UAE compliance calendar is a free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions, as a PDF and calendar file.
Frequently asked questions
What is a Qualifying Free Zone Person?
A Qualifying Free Zone Person is a free zone company that meets all the statutory conditions and so gets the 0% rate on qualifying income. Those conditions cover substance, qualifying income, the de minimis test, transfer pricing, audited accounts and not having elected into standard taxation.
What counts as qualifying income for free zone companies?
Qualifying income is income from qualifying activities, from transactions with other free zone persons that are the beneficial recipient, and from qualifying intellectual property. Income from excluded activities or from non-qualifying mainland work does not qualify.
What is de minimis for free zone corporate tax?
De minimis is the cap on non-qualifying revenue a Qualifying Free Zone Person can earn without losing its status. The cap is the lower of 5% of total revenue or AED 5,000,000 in a tax period.
Is there a tax-free threshold for UAE corporate tax?
Yes: the first AED 375,000 of taxable income is taxed at 0% and the excess at 9% under Cabinet Decision No. 116 of 2022. A Qualifying Free Zone Person does not get this band; it uses the 0% qualifying income rate instead.
When do I need to register for corporate tax?
Free zone companies must register through EmaraTax within the timelines set by the FTA, which depend on when the company was incorporated or its licence issued. Check your deadline on EmaraTax or with the FTA, because it differs between older and newer companies.
About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn
Sources
- Ministerial Decision No. 229 of 2025 on Qualifying Activities and Excluded Activities, Ministry of Finance
- Free Zone Persons Corporate Tax Guide, Federal Tax Authority (May 2024)
- Cabinet Decision No. 116 of 2022 on the annual Taxable Income subject to Corporate Tax, Ministry of Finance
- Corporate Tax in the UAE, Ministry of Finance
Last checked: 25 October 2026
This is general information, not tax or legal advice for your specific situation.