UAE Corporate Tax on Free Zones: Complete Guide

UAE Corporate Tax on Free Zones Complete Guide

UAE Corporate Tax on Free Zones

UAE gives many opportunities to businesses, and free zones play a big role in attracting investors. The country has offered a tax-free environment in free zones for a long time, but with new laws, UAE corporate tax on free zones will be reality from June 2023. Businesses need to know about this tax, the rules, and how it affects them.

How UAE Corporate Tax Applies to Free Zones

UAE government set up free zones to help investors and bring world trade to the region. Companies in UAE free zones enjoy a 0% corporate tax rate on income from specific activities if they follow all legal requirements and keep economic substance in the UAE.

Free zone businesses can get 0% tax rate if they earn qualifying income from these sources:

  • Transactions with businesses outside UAE
  • Deals with businesses in other free zones or same free zone
  • Sale of goods from a free zone business in a Designated Zone to UAE mainland importers
  • Passive income from UAE mainland like interest, royalties, dividends, capital gains from shares

When Do Free Zone Companies Pay 9% Tax?

Not all free zone companies keep the 0% tax rate. Sometimes, a business must pay the standard 9% corporate tax. This applies when:

  • They make deals with mainland UAE businesses not allowed under the “qualifying income” rules
  • The company has a branch in UAE mainland and earns income from it
  • They choose to switch to regular corporate tax. Once they switch, they can’t go back to 0% tax.

Qualifying Free Zone Person Explained

The law has made a new category called “Qualifying Free Zone Person.” This means a business registered, set up, or incorporated in a free zone can enjoy tax exemption on qualifying income if it meets these main conditions:

  • Maintains economic substance in UAE
  • Earns “qualifying income” set by cabinet decisions
  • Does not choose to pay normal corporate tax rates
  • Follows transfer pricing rules in the new tax law

If a business loses any of these conditions, or picks the standard tax, it will no longer be a “Qualifying Free Zone Person” and must pay 9% tax like other businesses.

When Does a Business Lose Qualifying Status?

According to UAE law, a free zone company will lose its special tax status if:

  • It doesn’t follow economic substance rules in a tax period
  • It doesn’t follow transfer pricing documentation rules
  • It gets disqualified by not meeting the “qualifying income” test
  • It voluntarily decides to join the 9% tax regime

Benefits and Responsibilities for Free Zone Businesses

For many years, UAE free zones gave benefits like 100% foreign ownership, no customs or VAT, and tax-free profits. With the new law:

  • Free zone companies must register for corporate tax with the FTA
  • They must file a tax return every year, even if their rate is 0%
  • They must keep records and follow all legal requirements
  • If they lose qualifying status, they must pay 9% tax on all their profits

Key Points for Free Zone Businesses

  • Qualifying Free Zone Person = 0% corporate tax on qualifying income
  • Income from most mainland activities = 9% corporate tax
  • Companies must keep records and file returns each year
  • Loss of qualifying status means full corporate tax applies

How Mubarak Al Ketbi (MAK) Auditing Can Help Free Zone Companies

If you feel like you’re walking on eggshells with all these tax rules, let Mubarak Al Ketbi (MAK) Auditing take the weight off your shoulders! Our team can help you:

  • Register your free zone business for UAE corporate tax
  • Check if your business meets “Qualifying Free Zone Person” rules
  • Keep and organize required records
  • File your corporate tax returns on time
  • Give advice on transactions and compliance

For more information, visit or contact us:

  • Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
  • WhatsApp/Call: +971 50 276 2132

FAQs on UAE Corporate Tax on Free Zones: Complete Guide

What is a family foundation in the UAE?
A family foundation is a charity set up by a family to manage money or assets for helping others or supporting social causes.
Are all family foundations exempt from corporate tax?
No, only those that meet strict rules for charitable activity and don’t run business operations can apply for exemption.
What should a family foundation do to get tax exemption?
The foundation must apply to the FTA, prove it only does charity, and follow all FTA conditions for exemption.
What happens if a family foundation earns money from business or investments?
It may become taxable and must register, file returns, and pay tax if required by the UAE law.
How can Mubarak Al Ketbi (MAK) Auditing help family foundations?
MAK Auditing helps with tax exemption applications, compliance, tax filing, and advice on keeping charitable status.

Know more Our Related Services

Company Liquidation in Dubai CommerCity (DCC) UAE

Liquidation Services in DCC Dubai CommerCity (DCC) is the first and leading free zone dedicated

VAT on Digital Marketing Services in Dubai Guide

Application of VAT on Digital Marketing Services in Dubai What Is VAT on Digital Marketing

Top 10 Audit Firms in UAE – Know about Audit firms

There are alot of Audit Firms to choose from. The (subjective) top 20 Audit Companies

Approved Auditors in Dubai Textile City Audit Services in DTC

Approved Auditors in Dubai Textile City Dubai Textile City (DTC) is the joint venture between

Bookkeeping For Real Estate Agents in Dubai, UAE

Introduction Are you looking for the best way to handle your money as a real

Bookkeeping Basics for Small Business Owners in Dubai

Introduction to Bookkeeping for Small Businesses Bookkeeping is a simple activity, but it plays a