Corporate Tax in UAE
Corporate Tax in UAE
Corporate Tax in the UAE is a direct tax applied to the net profits of businesses operating in the country. The standard Corporate Tax rate is 9% on taxable profits exceeding AED 375,000. Profits below this threshold are subject to 0% tax. The UAE continues to maintain one of the most competitive corporate tax rates globally, supporting long-term economic growth while remaining attractive to investors.
Corporate Tax for Free Zone Companies
Free Zone companies may benefit from 0% Corporate Tax on qualifying income, provided they meet specific regulatory conditions.
To qualify, the company must:
- Earn income from approved or qualifying activities
- Avoid income from excluded activities
- Maintain adequate substance within the Free Zone
- Comply with all filing and documentation requirements
Failure to meet the conditions may result in the standard 9% Corporate Tax being applied.
Corporate Tax Applicability in UAE Free Zones
Free Zone companies may benefit from 0% Corporate Tax if they qualify as a Qualifying Free Zone Person (QFZP) under UAE Corporate Tax Law.
To obtain zero-rated treatment, a Free Zone entity must earn “Qualifying Income” and meet specific compliance conditions.
Conditions to Qualify as a Free Zone Person (QFZP)
A Free Zone company must meet all the following criteria:
1
Maintain adequate economic substance (office premises, employees, operational presence)
2
Comply with the arm’s length principle and maintain transfer pricing documentation.
3
Not elect to be subject to the standard 9% Corporate Tax rate.
4
Ensure non-qualifying income does not exceed the de minimis limit.
5
Prepare audited financial statements.
What is Qualifying Income?
A Qualifying Free Zone Person can earn qualifying income from:
- Transactions with another Free Zone entity (excluding excluded activities).
- Transactions with Mainland or foreign companies for approved qualifying activities.
- Ownership or exploitation of qualifying intellectual property.
- Other income, provided de minimis requirements are met.
De Minimis Requirement
Non-qualifying income must not exceed 5% of total revenue or AED 5 million, whichever is lower.
Approved Activities with Mainland or Foreign Companies
Free Zone companies may conduct the following qualifying activities with non-Free Zone persons:
- Manufacturing or processing of goods
- Trading of qualifying commodities
- Holding shares and securities for investment
- Ship ownership and operations
- Reinsurance services
- Fund and wealth management services
- Headquarters services to related parties
- Treasury and financing services to related parties
- Aircraft financing and leasing
- Distribution within or from designated zones
- Logistics services
Excluded Activities
The following income does not qualify for 0% Corporate Tax treatment:
- Transactions with natural persons (except qualifying activities)
- Banking activities
- Insurance activities
- Non-qualifying finance and leasing activities
- Income from immovable property outside the Free Zone
If a company earns significant excluded income, it may be subject to the standard 9% Corporate Tax rate.
Corporate Tax Registration in UAE
Corporate Tax registration is mandatory for:
- All UAE companies (including Free Zone entities)
- Companies with zero turnover
- Companies generating income outside the UAE
- Branches of foreign companies operating in the UAE
Branches of UAE companies are not treated as separate legal entities and do not require separate registration.
Certain exemptions may apply as per UAE Corporate Tax Law, subject to eligibility.
Documents Required for Corporate Tax Registration
The following documents are typically required:
- Trade License copy
- Memorandum of Association (MOA) and amendments
- Passport, Visa, and Emirates ID of partners
- Authorized signatory details
- Tenancy contract or shared desk agreement
- Company email ID and mobile number
- FTA login details (if VAT registered)
Deadline for Corporate Tax Registration
- Newly incorporated companies must register within 3 months from the date of license issuance.
- Existing companies must register based on their trade license issuance date, as per the Federal Tax Authority guidelines.
Late registration may result in administrative penalties.
| Date of License issuance irrespective of year of issuance | Deadline for submitting a Tax Registration application |
|---|---|
| 1 January – 31 January | 31 May 2024 |
| 1 February – 28/29 February | 31 May 2024 |
| 1 March – 31 March | 30 June 2024 |
| 1 April – 30 April | 30 June 2024 |
| 1 May – 31 May | 31 July 2024 |
| 1 June – 30 June | 31 August 2024 |
| 1 July – 31 July | 30 September 2024 |
| 1 August – 31 August | 31 October 2024 |
| 1 September – 30 September | 31 October 2024 |
| 1 October – 31 October | 30 November 2024 |
| 1 November – 30 November | 30 November 2024 |
| 1 December – 31 December | 31 December 2024 |
Frequently Asked Questions (FAQ)
From a taxation perspective, what is the difference between a Free Zone and a Designated Zone?
Free Zone:
A Free Zone is a business jurisdiction in the UAE governed by its respective Free Zone Authority, operating under its own regulations and administrative framework. The UAE has more than 40 Free Zones supporting investment across various sectors.
Free Zones provide infrastructure, licensing flexibility, and business support services to facilitate company formation and operations. UAE VAT and Corporate Tax (CT) provisions apply to Free Zone companies, with specific exemptions available when qualifying conditions are met under the Corporate Tax regime.
Designated Zone:
A Designated Zone is a Free Zone that is treated as outside the UAE for VAT purposes, subject to meeting regulatory conditions such as fencing and customs control. Supplies of goods within a Designated Zone may fall outside the scope of VAT, provided movement regulations are complied with.
For Corporate Tax purposes, companies operating in Designated Zones may qualify for 0% tax on qualifying income, subject to meeting the criteria set under UAE Corporate Tax Law and related Cabinet and Ministerial Decisions.
Is the income of a Free Zone company zero-rated under UAE Corporate Tax?
Not automatically. A Free Zone company may benefit from 0% Corporate Tax only on “Qualifying Income” earned from approved activities.
A Qualifying Free Zone Person must also satisfy the De Minimis requirement, meaning non-qualifying income must not exceed 5% of total revenue or AED 5 million, whichever is lower. If this threshold is exceeded, the entity may lose qualifying status.
What is Qualifying Income?
Qualifying Income refers to income derived by a Qualifying Free Zone Person from approved qualifying activities and not from excluded activities.
The classification depends on the nature of the activity, the counterparty to the transaction, and compliance with regulatory thresholds defined under Cabinet and Ministerial Decisions.
What are the criteria to determine Qualifying Income?
A Qualifying Free Zone Person must meet the following conditions:
- Income from transactions with other Free Zone Persons (excluding excluded activities).
- Income from transactions with non-Free Zone Persons, provided the activity qualifies and is not excluded.
- Compliance with the De Minimis threshold (non-qualifying income below 5% of total revenue or AED 5 million, whichever is lower).
- Transactions with a Free Zone Person acting as the beneficial recipient of goods or services.
What if a Free Zone company conducts non-qualifying activities?
Income from non-qualifying or excluded activities is subject to the De Minimis rule. If such income exceeds the permitted threshold, the company may cease to qualify for 0% Corporate Tax and become subject to the standard 9% rate.
Maintaining proper activity classification is therefore essential for tax efficiency.
What are excluded activities? Are excluded and non-qualifying activities the same?
Excluded activities are specifically listed under Ministerial Decision No. 139. These form part of non-qualifying income.
Non-qualifying activities may arise when a qualifying activity is conducted with a non-qualifying counterparty. For example, distribution of goods may be a qualifying activity, but if conducted with a non-qualifying Free Zone Person, it may become non-qualifying for Corporate Tax purposes.
Is a Free Zone trading company eligible for 0% Corporate Tax?
Eligibility depends on where and how trading activities are conducted.
If goods are traded within a Designated Zone and do not enter mainland UAE, the activity may qualify for 0% Corporate Tax. However, trading with mainland entities or domestic customers is generally subject to the standard 9% Corporate Tax rate once the taxable income threshold of AED 375,000 is exceeded.
Zero-rated Corporate Tax may apply when trading occurs between:
- Free Zone companies within Designated Zones
- Transactions where the Free Zone Person is the beneficial recipient
- International import-export transactions where goods do not enter the UAE (high sea sales)
Our Free Zone company only conducts high sea sales. Is the revenue zero-rated?
Where trading is structured through a Designated Zone and goods do not enter UAE territory, the income may qualify for 0% Corporate Tax, provided all regulatory conditions are satisfied.
Proper documentation and commercial substance are important to support this position.
Our company provides services. Is service income zero-rated?
Service income may qualify for 0% Corporate Tax if it is derived from another Free Zone Person and falls within qualifying activities.
Income from services provided to non-Free Zone Persons is subject to the De Minimis limit. If it exceeds the permitted threshold, the company may lose qualifying status.
If all income is from services provided outside the UAE, is it zero-rated?
Not necessarily. Under Corporate Tax rules, qualifying income must generally be derived from transactions with Free Zone Persons.
Income from services provided to foreign customers does not automatically qualify for 0% Corporate Tax and may be subject to the standard 9% rate, depending on classification and thresholds.
What about income from a mainland branch of a Free Zone company?
Income attributable to a mainland branch is treated as income from a Domestic Permanent Establishment and does not form part of Qualifying Income.
Such income is subject to standard Corporate Tax provisions and may affect De Minimis calculations.
What if the Free Zone entity is a branch of a mainland or foreign company?
For UAE Corporate Tax purposes, a Free Zone branch is treated as a separate juridical person.
It may qualify for 0% Corporate Tax on Qualifying Income, subject to compliance with De Minimis limits and all regulatory requirements.
Are there additional conditions to become a Qualifying Free Zone Person?
Yes. In addition to meeting activity requirements, a company must:
- Maintain adequate economic substance
- Comply with arm’s length principles and transfer pricing documentation
- Not elect to be subject to standard Corporate Tax
- Ensure non-qualifying income remains within De Minimis limits
- Prepare audited financial statements where required
Failure to meet these conditions may result in loss of qualifying status.
What does “Adequate Substance” mean?
A Qualifying Free Zone Person must conduct its core income-generating activities within the Free Zone and maintain adequate assets, qualified employees, and operating expenditure relative to its business scale.
Outsourcing is permitted to related or third parties within a Free Zone, provided appropriate supervision and control are maintained.
What happens if qualifying conditions are not met during a tax period?
If a company fails to meet the required conditions, it may cease to be treated as a Qualifying Free Zone Person from the beginning of the relevant tax period.
The entity may remain subject to standard Corporate Tax provisions for that period and the subsequent four tax periods, as outlined under applicable Ministerial Decisions.
B2B Group of Consultants provides complete support for Corporate Tax assessment, Free Zone eligibility evaluation, and Corporate Tax registration in the UAE, ensuring compliance with current regulations.