Are free zone companies subject to Corporate Tax?
ARE FREE ZONE COMPANIES SUBJECT TO CORPORATE TAX?
Are free zone companies subject to Corporate Tax in the UAE? Learn when 0% applies, what counts as qualifying income, and what triggers 9%. TAXESMAN.
Are Free Zone Companies Subject to Corporate Tax?
Are free zone companies subject to Corporate Tax?
Yes. Free zone companies are within the scope of UAE Corporate Tax, but some may benefit from a 0% Corporate Tax rate on qualifying income if they meet specific conditions.
This is a critical point because many founders in Dubai, Abu Dhabi, Sharjah, and UAE free zones assume that “free zone” automatically means “no Corporate Tax.” In reality, the tax treatment depends on your status and, more importantly, on the type of income you earn.
In this guide, you will learn when a free zone company is subject to Corporate Tax, when 0% applies, when 9% applies, and the most common mistakes that trigger compliance issues.
If you want a quick and reliable check of your free zone setup, TAXESMAN can help.
Are Free Zone Companies Subject to Corporate Tax by Default?
Yes. Free zone companies are generally considered Taxable Persons under the UAE Corporate Tax regime.
The key distinction is the following:
- Some free zone companies can qualify as a Qualifying Free Zone Person (QFZP) and benefit from 0% Corporate Tax on qualifying income
- Other income, or cases where QFZP conditions are not met, may be taxed at the standard 9% Corporate Tax rate
If you want confirmation of whether your company qualifies as a QFZP, TAXESMAN can assess this for you.
When Do Free Zone Companies Get 0% Corporate Tax?
A free zone company can benefit from 0% Corporate Tax on its qualifying income if it meets the conditions to be treated as a Qualifying Free Zone Person (QFZP).
Under the Corporate Tax framework:
- Qualifying income can be taxed at 0%
- Taxable income that is not qualifying income can be taxed at 9%
An important detail many businesses miss is this:
A QFZP does not benefit from the general SME “0% up to AED 375,000” threshold on non-qualifying income. Any non-qualifying taxable income may be taxed at 9% from the first dirham.
If you are unsure whether your income is qualifying or non-qualifying, TAXESMAN can review this with you.
What Counts as Qualifying Income for Free Zone Companies?
This is the core of the question: are free zone companies subject to Corporate Tax?
In simplified terms, qualifying income generally includes:
- Income from transactions with other Free Zone Persons, subject to conditions
- Income from certain qualifying activities
- Income that is not linked to a domestic permanent establishment
- Income that does not arise from excluded activities
The detailed definitions and activity lists are set out in official Cabinet Decisions and FTA guidance.
If you want clarity, TAXESMAN can map your revenue streams (free zone clients, mainland clients, overseas clients) and classify them correctly.
When Do Free Zone Companies Pay 9% Corporate Tax?
Free zone companies may be subject to 9% Corporate Tax in common situations such as:
- Failure to meet QFZP conditions
- Earning non-qualifying income
- Operating through a domestic permanent establishment
- Carrying out excluded activities under the Corporate Tax framework
Even QFZPs can have income taxed at 9% if that income is not qualifying.
This is especially important if your free zone company sells services or goods to mainland UAE customers. TAXESMAN can review your contracts, invoicing, and structure to reduce risk.
Do Free Zone Companies Need to Register for Corporate Tax?
Yes. The Federal Tax Authority has clearly stated that all Free Zone Persons must register for Corporate Tax, regardless of whether they qualify for 0% tax or not.
A common compliance mistake is focusing only on the “0% rate” and ignoring registration and filing obligations.
If you want a clean and correct Corporate Tax registration and compliance setup, TAXESMAN can handle it for you.
Real Examples: Are Free Zone Companies Subject to Corporate Tax?
Example 1: Dubai Free Zone Startup Selling to Other Free Zones
A Dubai free zone company provides B2B services to another free zone entity and meets the QFZP conditions.
- Qualifying income may be taxed at 0%
- Any non-qualifying income may be taxed at 9%
Example 2: Abu Dhabi Free Zone Company Selling to Mainland Clients
An Abu Dhabi free zone company generates a significant portion of its revenue from mainland UAE customers.
- Part of this income may be non-qualifying
- That portion may be taxed at 9%, depending on the facts and structure
Example 3: Sharjah Free Zone Company with Mixed Activities
A Sharjah free zone company operates two business lines: one qualifying and one excluded.
- Qualifying income may be taxed at 0%
- Excluded or non-qualifying income may be taxed at 9%
If you run mixed activities, TAXESMAN can help you separate and report income properly.
Are Free Zone Companies Subject to Corporate Tax?
To summarise, are free zone companies subject to Corporate Tax?
Yes. Free zone companies are within the scope of UAE Corporate Tax. Some may benefit from 0% Corporate Tax on qualifying income if they meet the QFZP conditions, while non-qualifying income may be taxed at 9%. All free zone companies must also register for Corporate Tax.
Do not rely on assumptions about “free zone exemption.” Let TAXESMAN assess your free zone status, confirm qualifying income, and manage registration and filing the right way.
FAQs: Are Free Zone Companies Subject to Corporate Tax?
Are free zone companies subject to Corporate Tax in the UAE?
Yes. Free zone companies are in scope, and qualifying free zone persons may benefit from 0% tax on qualifying income.
Do free zone companies automatically pay 0% Corporate Tax?
No. The 0% rate applies only to qualifying income and only if QFZP conditions are met.
Can a free zone company have both 0% and 9% tax in the same year?
Yes. A QFZP can have 0% tax on qualifying income and 9% tax on non-qualifying taxable income.
Do free zone companies still need to register for Corporate Tax?
Yes. All Free Zone Persons must register for Corporate Tax.