Quick summary

• The UAE introduced corporate tax from June 2023.
• Free zone companies can enjoy a 0% corporate tax rate if they meet certain conditions.
• Not all activities and structures are exempt from this requirement.
• Proper classification and compliance are critical to avoid unexpected taxation.
• Learn the qualifying criteria, exceptions, and key documentation requirements.

UAE corporate tax for free zone companies: Are you exempt?

With the introduction of the UAE Corporate Tax regime in 2023, many businesses, particularly those established in Free Zones, are navigating new tax rules to ensure compliance and take advantage of available exemptions. The UAE Ministry of Finance announced that Free Zone companies can still enjoy a 0% corporate tax rate, but only under strict qualifying conditions.

This guide is designed to walk Free Zone businesses through the rules, exemptions, and compliance requirements in 2025, helping you understand if you’re eligible for the tax exemption and how to retain it effectively.

Understanding UAE corporate tax law for free zone companies

Corporate Tax in the UAE is currently set at:

• 0% on taxable income up to AED 375,000
• 9% on income above AED 375,000

However, Free Zone companies can enjoy 0% Corporate Tax if they meet the definition of a “Qualifying Free Zone Person (QFZP).”

A Qualifying Free Zone Person is a business that:

• Maintains adequate presence in the Free Zone
• Earns qualifying income
• Complies with transfer pricing rules
• Does not elect to be subject to corporate tax. 
• Must comply with the arm’s length principle for transactions with related parties and for arrangements between free zone parent and its foreign permanent establishment or domestic permanent establishment.
• Must maintain transfer pricing documentation. 

Failure to meet these requirements can result in taxation at the regular 9% rate.

What is a qualifying free zone person?

According to the UAE Corporate Tax Law, a “Qualifying Free Zone Person” is a legal entity established in a free zone that meets all the following conditions:

What is qualifying income?

The Federal Tax Authority (FTA) outlines qualifying income as revenue generated from:

Note: Income derived from the mainland UAE is generally not eligible for the 0% rate.

Activities that could disqualify you

Even if your business is registered in a free zone, certain activities could put your exemption status at risk:

1. Mainland trading: Selling goods or services directly to mainland customers.
2. Minimal substance: Having no physical office or employees in the free zone.
3. Non-compliance with documentation: Failing to submit transfer pricing documentation or audited financial statements.
4. Inter-company Transactions Not at Arm’s Length.

How to ensure you qualify for 0% corporate tax

Free zone companies must:

• Register for corporate tax and obtain a Tax Registration Number (TRN).
• Maintain audited financial statements.
• File annual corporate tax returns.
• Provide sufficient economic substance.
• Ensure accurate transfer pricing documentation.

Consulting a tax advisor is highly recommended to ensure compliance with tax laws and regulations.

Required documents for tax compliance

Frequently asked questions (FAQs)

Why trust Kanoony with your corporate tax compliance?

Understanding the UAE tax framework is one thing; staying compliant while optimizing your benefits is another. With Kanoony, you benefit from:

• Experienced professionals who understand Free Zone operations
• Tailored guidance based on your business structure
• Ongoing updates and advice on tax law changes
• Seamless filing of corporate tax returns

Whether you’re registering your Free Zone business or ensuring compliance with the new corporate tax regime, Kanoony streamlines the process, minimizes your risk of penalties, and maximizes your benefits.

Take the next step with confidence

Let Kanoony handle your tax compliance so you can focus on growing your business.

Contact us today to stay tax-exempt and stress-free!