A free zone company pays 0% only on its qualifying income, and only while it meets every condition in the Corporate Tax Law. Income that does not qualify is taxed at 9%. Failing a condition costs the company the status for five tax periods.
The conditions
To be a qualifying free zone person, the company must do all of the following.
- Keep adequate substance in the UAE.
- Earn qualifying income, as defined by Cabinet decision.
- Not elect to be taxed at the standard rates.
- Follow the transfer pricing rules and documentation requirements.
- Meet any further conditions the Minister sets, including the de minimis rule.
Every qualifying free zone person must also prepare and keep audited financial statements, whatever its revenue.
Substance means real activity, people and premises in the zone. See What does substance actually mean for my company?.
The de minimis rule
A small amount of non-qualifying revenue is allowed. It must not exceed 5% of total revenue or AED 5 million, whichever is lower. Some items, such as revenue from a permanent establishment, are left out of the test. If non-qualifying revenue goes above the limit, the company no longer meets the requirement.
Losing the status
A company that fails any condition during a tax period stops qualifying from the start of that period. It stays out for the following four tax periods as well. All its taxable income in those years is taxed at the standard rates. Whether trading income counts as qualifying is covered in How is an international trading business taxed in a UAE free zone?
An example
Amira Haddad, a Jordanian engineer, runs a free zone company in Dubai that makes components and sells them to other free zone companies. Her revenue is AED 8 million. She also earns AED 300,000 from a consulting job for a mainland client. That is 3.75% of revenue, under both limits, so her company stays qualifying. A larger consulting contract would have pushed her over the 5% limit and out of the regime for five tax periods.
Quick questions
Does every free zone company get 0%?
No. Only a qualifying free zone person gets 0%, and only on qualifying income. Other income is taxed at 9%.
Can a company leave the regime by choice?
Yes. It can elect to be taxed at the standard rates, but it then stops being a qualifying free zone person.
Sources: Federal Decree-Law No. 47 of 2022 and its amendments (Ministry of Finance); Ministerial Decision No. 229 of 2025 on Qualifying Activities and Excluded Activities; Ministerial Decision No. 84 of 2025 on Audited Financial Statements.
General information as at October 2026, not advice. The examples are fictional and simplified, and the rules have conditions and exceptions not covered here. Take advice on your own circumstances, in each country involved, before acting.