Corporate tax and free zones

A free zone licence and a tax position are two different things. A licence says what a company may do and where. Tax rules say what it owes. Holding one does not settle the other.

What the rules say

The UAE has a federal corporate tax. Federal Decree-Law No. 47 of 2022 applies to financial years that begin on or after 1 June 2023. The standard rates are 0% on taxable income up to AED 375,000 and 9% on taxable income above that, according to the UAE Government portal (page updated 30 March 2026).

Free zone companies are treated separately. A company that meets every condition to be a "Qualifying Free Zone Person" pays 0% on its "Qualifying Income". Its other income is taxed at 9%, and it does not get the 0% band on the first AED 375,000 of that other income. This is as set out in the Federal Tax Authority's guide for free zone persons (May 2024).

Why "0%" needs conditions

Founders sometimes hear that free zone companies pay no tax. The accurate version is narrower. According to the Federal Tax Authority's guide, a free zone company must meet all of the following to be a Qualifying Free Zone Person:

• It is a company, or a branch, registered in a free zone.
• It keeps adequate substance in a free zone: its core income-generating activities are carried out there, with adequate assets, full-time employees and spending.
• It earns Qualifying Income: income from dealings with other free zone persons, from qualifying activities, or from qualifying intellectual property, within limits.
• It has not chosen to be taxed under the standard rules.
• It follows the arm's length principle and keeps transfer pricing documents for dealings with related parties.
• It keeps audited financial statements.
• Its non-qualifying revenue stays within a limit: the lower of AED 5,000,000 or 5% of its total revenue.

If a company fails a condition, or chooses the standard rules, it stops being a Qualifying Free Zone Person from the start of that tax period and for the four tax periods after it.

Which activities count as qualifying is set by a Ministerial Decision. Ministerial Decision No. 229 of 2025, issued by the Ministry of Finance on 3 September 2025, replaced Ministerial Decision No. 265 of 2023. The Federal Tax Authority's guide was published before it, so read the decision itself and the Authority's current guidance, not only the guide.

Two other taxes to keep apart

• VAT. The standard rate is 5%, introduced on 1 January 2018. A business must register if its taxable supplies and imports exceed AED 375,000, and may register voluntarily above AED 187,500, according to the Ministry of Finance.
• Tax where you live. Your home country has its own rules about what you owe. See Moving a business from the UK or Europe.

What this guide does not do

It does not tell you what you owe or how to arrange your affairs. The Federal Tax Authority says its own guide is not legal or tax advice, is not binding, and can change without notice. For your own position, ask a qualified tax adviser, in the UAE and in your home country.