Free zone corporate tax: do you pay the 9 percent?

Free zone corporate tax is 9% on taxable profit above AED 375,000, but a qualifying free zone person can access a 0% rate on its qualifying income. The exemption is real, but conditional, and a free zone company that fails the conditions pays the 9% like anyone else. Here is how the rule actually works, from the Federal Tax Authority.

What is the headline corporate tax rule?

Under the Federal Tax Authority, UAE corporate tax applies at 0% on taxable profit up to AED 375,000 and 9% above it, for mainland and free zone companies alike. Every taxable person must register for corporate tax, including most free zone companies, even where the rate works out at 0%. Registration and filing are obligations regardless of the rate that applies to you.

What is a qualifying free zone person?

A qualifying free zone person is a free zone company that meets the conditions the law sets, including earning qualifying income, maintaining adequate substance in the UAE, meeting transfer-pricing rules, and not electing to be taxed normally. Where those conditions are met, qualifying income is taxed at 0% and non-qualifying income at 9%. The detail is technical, which is why the status is assessed, not assumed.

What counts as qualifying income?

Broadly, qualifying income includes income from transactions with other free zone persons and certain qualifying activities, while income from the UAE mainland or from excluded activities is generally not qualifying. The line between the two is where most of the risk sits. We assess your actual revenue lines against the rules rather than assuming the whole company sits at 0% and hoping.

What should a free zone company do now?

Register for corporate tax, keep proper books, and get the qualifying status assessed against your real activities before you rely on the 0% rate. The penalty for assuming the exemption and being wrong is the 9% plus the cost of a late correction. We handle corporate tax registration and advise on which rate genuinely applies to you.

What is the next step?

Tell us your activities and where your customers are, and we will assess your free zone corporate tax position and register you correctly. See the accounting and tax services or read our guide to the qualifying free zone person. We only quote figures we can trace to the issuing authority, such as the UAE Government business guide, so what you plan on is real and current.