Corporate tax for freezone companies in UAE has become one of the most discussed topics since the introduction of the Federal Corporate Tax Law in June 2023. While the UAE remains one of the most business-friendly destinations in the world, the new rules have changed how companies — including those in free zones — manage their tax obligations.

Free zones have long been attractive to entrepreneurs due to 0% personal income tax, full foreign ownership, and customs benefits. However, many business owners mistakenly believe that free zone companies are automatically exempt from corporate tax. In reality, specific conditions must be met to enjoy the 0% corporate tax rate on qualifying income.

In this complete 2025 guide, we’ll cover:

• Corporate tax rates for freezone companies

• Qualifying vs non-qualifying income

• Exemptions, reliefs, and compliance requirements

• Common mistakes to avoid

• How to register with the FTA

By the end, you’ll know exactly how to remain compliant, keep your freezone tax benefits, and avoid costly penalties.

Understanding Corporate Tax in the UAE 

Corporate tax is a direct tax on the net profit of businesses, introduced in the UAE for financial years starting on or after 1 June 2023. The standard corporate tax rate is 9% on taxable profits above AED 375,000, with profits below that threshold taxed at 0% to support small businesses and startups.

The main objectives of introducing corporate tax are to:

• Align with global tax standards (OECD BEPS framework)

• Diversify government revenue beyond oil

• Enhance the UAE’s reputation as a transparent, compliant business hub

While the rules apply to most businesses in the UAE — including mainland companies — freezone companies enjoy special treatment, provided they meet specific criteria. This means not all freezone businesses automatically qualify for 0% corporate tax; it depends on the nature of their income and whether they comply with substance requirements.

Learn More: Understanding Corporate Tax in the UAE

Corporate Tax for Freezone Companies – Overview

Free zones in the UAE were originally created to attract foreign investment by offering benefits such as:

• 100% foreign ownership

• 0% import/export duties

• No restrictions on profit repatriation

Under the new corporate tax regime, Qualifying Free Zone Persons (QFZPs) can still enjoy a 0% tax rate on qualifying income. However, if a freezone company earns non-qualifying income, that portion will be taxed at 9%.

The Federal Tax Authority (FTA) defines a Qualifying Free Zone Person as a business that:

1. Maintains adequate substance in the UAE

2. Earns qualifying income (as per Cabinet Decision No. 55 of 2023)

3. Complies with transfer pricing regulations

4. Has audited financial statements

5. Does not elect to be subject to the standard corporate tax rate

Failing to meet these conditions means losing free zone tax benefits — and being taxed like a mainland company.

Qualifying vs Non-Qualifying Income 

What is Qualifying Income?

Qualifying income generally includes:

• Income from transactions with other freezone businesses

• Income from outside the UAE (export services or goods)

• Certain regulated activities such as holding shares, reinsurance, fund management, and manufacturing within the free zone

• Passive income like dividends, capital gains, and royalties from non-mainland sources

What is Non-Qualifying Income?

Non-qualifying income includes:

• Income from trading with UAE mainland customers (unless through a mainland distributor)

• Any activity not listed under the qualifying criteria

• Failing to meet economic substance requirements

Example:
If your freezone company sells services to another freezone company — 0% corporate tax applies. But if you sell directly to a mainland customer without using a mainland agent — that income will be taxed at 9%.

Corporate Tax Registration for Freezone Companies

All freezone companies — whether qualifying or not — must register for corporate tax with the Federal Tax Authority.

Steps to register:

1. Create an FTA account via the EmaraTax portal

2. Submit the online corporate tax registration form

3. Upload required documents (trade license, Emirates ID/passport of owners, lease agreement, audited financial statements)

4. Wait for FTA approval and obtain your corporate tax registration number

Penalties for late registration:

• AED 10,000 for failing to register on time

• Additional fines for late filing and payment

Compliance Requirements for Freezone Companies 

To maintain 0% corporate tax benefits, freezone companies must:

Economic Substance Requirements (ESR)

Prove that core income-generating activities are conducted within the UAE.

Audited Financial Statements

Mandatory for all freezone companies claiming 0% corporate tax.

Transfer Pricing Documentation

Applies if you transact with related parties or connected persons.

Annual Corporate Tax Return

Must be filed electronically within 9 months from the end of the financial year.

Exemptions & Reliefs for Freezone Companies 

Some reliefs include:

• Small Business Relief: Businesses with revenue ≤ AED 3 million can pay 0% corporate tax until 2026.

• Sector Exemptions: Charities, government entities, and natural resource businesses are exempt.

• Intra-Free Zone Transactions: Often remain tax-free if qualifying rules are met.

Common Mistakes to Avoid 

• Assuming all freezone income is tax-free

• Ignoring ESR requirements

• Not registering with FTA on time

• Poor bookkeeping and lack of audited accounts

Learn More: How Corporate Tax Is Calculated in the UAE

Common Doubts

1. Do freezone companies in UAE pay corporate tax?
Yes, if they earn non-qualifying income or fail to meet qualifying conditions.

2. What is the corporate tax rate for freezone companies?
0% on qualifying income, 9% on non-qualifying income.

3. Is corporate tax registration mandatory for freezone companies?
Yes, for all freezone businesses, even if they qualify for 0% tax.

4. How can I maintain 0% corporate tax in a free zone?
Meet qualifying income criteria, comply with ESR, and maintain audited accounts.

Corporate tax for freezone companies in UAE is no longer an optional compliance matter — it’s a legal requirement. By understanding the difference between qualifying and non-qualifying income, registering with the FTA, and meeting compliance requirements, you can still enjoy 0% corporate tax benefits and avoid heavy penalties.

If you’re unsure about your company’s tax status, don’t take risks.
✅ Book a free consultation with our corporate tax specialists today and stay compliant