UAE Corporate Tax & Free Zones (2026)
A Qualifying Free Zone Person (QFZP) pays 0% corporate tax on qualifying income and 9% on taxable income that is not qualifying income. Eligibility depends on the activity and all applicable conditions. A free zone person that does not qualify follows the standard corporate tax rules and rates. Check the Federal Tax Authority guide for your circumstances.
UAE corporate tax rates at a glance
| Situation | Rate | Notes |
|---|---|---|
| Standard corporate tax: taxable income up to AED 375,000 | 0% | For persons subject to the standard rates; a QFZP is subject to different rules |
| Mainland profit above AED 375,000 | 9% | Standard corporate tax rate |
| Free zone — qualifying income (as a QFZP) | 0% | Only if you meet all Qualifying Free Zone Person conditions |
| QFZP — taxable income that is not qualifying income | 9% | Classification depends on the transaction and activity; the de minimis test also applies |
| Very large multinationals (Pillar Two) | 15% | Groups with global revenue of about EUR 750m+ (AED ~3bn) |
How a free zone company keeps 0%
To be a Qualifying Free Zone Person and keep 0% on qualifying income, a company must generally:
- Keep adequate substance in the free zone — real office, staff and core income-generating activity there
- Earn qualifying income (e.g. dealings with other free zone businesses and certain qualifying activities)
- Stay within the de-minimis limit on non-qualifying income
- Keep audited financial statements
- Comply with transfer-pricing rules and documentation
- Not elect to be taxed at the standard rate
If a company fails a QFZP condition, the standard corporate tax rules apply from the beginning of that tax period and for the following four tax periods.
Common mistakes that cost the 0%
- Assuming that all transactions with mainland customers qualify or that none can qualify, without checking the activity and conditions
- Being a "shelf" company with no real substance in the zone
- Skipping corporate tax registration or the annual return because "we pay 0%"
- No audited accounts or transfer-pricing documentation
What you would actually pay — worked examples
The rate on its own does not tell you the bill. These four cases cover almost every company asking the question, each on the same AED 600,000 of profit.
| Your situation | How it is taxed | Tax due |
|---|---|---|
| Mainland company, AED 600,000 profit | First AED 375,000 at 0%, remaining AED 225,000 at 9% | AED 20,250 |
| Free zone company, all revenue from other free zone businesses | Qualifying Free Zone Person, all income qualifying | AED 0 |
| Free zone company, AED 2m total revenue including AED 400,000 of non-qualifying revenue | Non-qualifying revenue exceeds 5% of total. QFZP status is lost and the standard rates apply, assuming no relief | AED 20,250 |
| Eligible resident company electing Small Business Relief, meeting all conditions | Treated as having no taxable income for the period | AED 0 |
In the third row, the standard rates apply from the start of the tax period in which the QFZP conditions are not met and for the four subsequent tax periods. The example assumes no applicable relief or other adjustment. A QFZP cannot elect Small Business Relief.
The de-minimis limit, in numbers
A Qualifying Free Zone Person may earn some non-qualifying revenue, but it must not exceed the lower of these two caps:
| Cap | Limit | What it means in practice |
|---|---|---|
| Percentage cap | 5% of total revenue | On AED 2m of total revenue, a maximum of AED 100,000 non-qualifying |
| Absolute cap | AED 5,000,000 | Binds once total revenue passes AED 100m, where 5% would be the larger figure |
The lower cap applies. If the requirement is not met, QFZP status is lost from the beginning of that tax period and for the next four tax periods; the standard corporate tax rules and rates apply.
Deadlines and penalties
| Obligation | Deadline | Penalty if missed |
|---|---|---|
| Register for corporate tax with the FTA | Required of every company, including 0% payers | AED 10,000 |
| File the return and pay | Within 9 months of the end of the tax period — 30 September 2026 for a 31 December 2025 year end | AED 500 per month for the first 12 months, then AED 1,000 per month |
| Keep records and audited accounts | Retain for 7 years | AED 10,000, rising to AED 20,000 on repetition |
| Notify the FTA of a change in your details | Within 20 business days | AED 1,000, up to AED 5,000 on repetition |
The trap here is the 0% company that never registers because it owes nothing. The AED 10,000 penalty is for failing to register, not for unpaid tax, so a company with zero liability can still be fined.
Which of your income is qualifying?
Broadly, these count as qualifying income for a free zone company:
- Revenue from transactions with other free zone persons, where the recipient is the beneficial recipient and the applicable conditions are met
- Revenue from qualifying activities with anyone — manufacturing and processing of goods, holding of shares and securities, ownership and operation of ships, regulated fund and wealth management, headquarter services to related parties, treasury and financing to related parties, aircraft financing and leasing, and logistics and distribution from a designated zone
- Income attributable to a foreign or domestic permanent establishment is treated separately; consult the FTA guide rather than assuming it is qualifying income
The following may give rise to non-qualifying revenue, depending on the applicable conditions and exclusions:
- Revenue from transactions with non-free-zone persons that is not from a qualifying activity, subject to the applicable rules
- Excluded activities, including transactions with natural persons, most regulated banking and insurance, and most finance and leasing
- Income from UAE immovable property outside a designated zone, and commercial property income from a non-free-zone tenant
Whether income qualifies depends on the transaction and activity. Compare the total cost on free zone vs mainland before you commit.
Corporate tax & free zones — FAQs
Do free zone companies pay corporate tax in the UAE?
A Qualifying Free Zone Person (QFZP) pays 0% on qualifying income and 9% on taxable income that is not qualifying income. A free zone company that is not a QFZP is subject to the standard corporate tax rules and rates.
What is a Qualifying Free Zone Person?
A QFZP must meet all applicable requirements, including adequate substance, qualifying income, the de minimis requirements, audited financial statements, transfer pricing rules and not electing the standard rates. Review the Federal Tax Authority guidance for all conditions.
Does income from mainland customers automatically fail to qualify?
No. Classification depends on the activity, the customer and the rules on qualifying and excluded activities. Certain qualifying activities can generate qualifying income from non-free-zone persons, subject to the applicable conditions.
What is the de minimis limit?
Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million. If a free zone person fails to meet the conditions, it ceases to be a QFZP from the beginning of that tax period and for the four subsequent tax periods; standard rules and rates apply.
Can a Qualifying Free Zone Person claim Small Business Relief?
No. The Federal Tax Authority lists Qualifying Free Zone Persons among those who cannot elect Small Business Relief. Other resident persons must meet all applicable eligibility conditions and make an election for the tax period.
When is a corporate tax return due?
The general deadline for filing the return and paying corporate tax is nine months after the end of the relevant tax period. Check the Federal Tax Authority for the requirements and any applicable exceptions.
How is AED 600,000 of taxable income taxed under the standard rates?
For a person subject to the standard rates, AED 375,000 is taxed at 0% and the remaining AED 225,000 at 9%, giving AED 20,250, assuming no relief or other adjustment. QFZPs follow different rules.
Related
Sources: FTA Free Zone Persons guide and FTA Small Business Relief guidance. This page is general information, not tax advice. Corporate tax rules change and depend on your activities — confirm current rules with the UAE Federal Tax Authority (tax.gov.ae) or a qualified tax advisor.
Last updated: October 2026 · Maintained by the My Business Setup editorial team
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