Zero taxes in UAE free zones are history. Welcome to the new reality — a 9% corporate tax. What does the new tax law mean for businesses, and can companies still find comfort and confidence in the UAE as a tax haven?
In this article, we break down who can still enjoy a 0% profit tax in the UAE’s free zones. Under the new law, a company registered in a free zone may qualify as a Qualifying Free Zone Person (QFZP) — and keep the coveted 0% rate. The catch? It must meet a set of strict criteria, including the de-minimis threshold on non-qualifying income. Fail to comply, and the rate jumps to the mainland standard rate of 9%.
This guide takes you through the rules in plain language, clarifies common pitfalls, and shows exactly what it takes to stay on the right side of the Federal Tax Authority while preserving your free zone advantage.
Understanding 0% and 9% tax rates
The UAE Corporate Tax Law introduces two possible rates for a Qualifying Free Zone Person (QFZP):
- 0% on qualifying income (explained below)
- 9% on non-qualifying income, including amounts that exceed the de-minimis threshold (5% or AED 5 million, whichever is lower)
“A Qualifying Free Zone Person that at any particular time during a tax period fails to meet any of the conditions shall cease to be a Qualifying Free Zone Person from the beginning of the relevant tax period and for the subsequent four tax periods. So, it is critical for a free zone company that has chosen the QFZP status to ensure it meets the qualifying criteria all the way”, stresses the Chief Accountant at Emirabiz.
What counts as Qualifying Income?
Let’s take a closer look at what qualifying income means under Cabinet Decision 100/2023 and the Federal Tax Authority’s guidelines:
- A free zone company must carry out transactions with other free zone entities (“Free Zone Persons”) inside the zone
- Its income must come from qualifying activities such as manufacturing, logistics, fund management, treasury, commodity trading and head-office services rendered to foreign group companies
- Other source of income can be from goods stored in or processed through a designated zone (customs-controlled area)
However, there are business activities that are always excluded, for example, banking, insurance, telecom services, and real-estate transactions with mainland parties, and are always taxed at 9% irrespective of the QFZP status.
QFZP checklist for 2025
So, what are these criteria to qualify for the 0% tax rate? In essence, a free zone company must:
> Maintain adequate substance (office space, employees, and annual operating expenditure) in the free zone
> Ensure that it earns mainly qualifying income (non-qualifying revenue up to 5% or AED 5 mln, whichever is lower)
> Prepare audited financial statements and keep separate records for different income streams
> Comply with UAE transfer pricing rules and file an annual corporate tax return
> Comply with the arm’s length principle
> Not elect to be taxed at the standard rate (an irreversible choice for at least five years)
How does QFZP work in practice?
Let’s consider an imaginary case to see how the QFZP status works in real life.
ABC Logistics FZ-LLC, registered in a UAE Free Zone, provides logistics services including transportation of goods, storage, freight forwarding, and movement of personnel. During 2024, the company earned AED 4,200,000 from transactions with non-free zone persons (mainland and foreign) as follows:
Transportation of goods: AED 1,500,000
Storage of goods: AED 1,700,000
Freight forwarding services: AED 800,000
Movement of personnel: AED 200,000
Only the income from movement of personnel (AED 200,000) is considered non-qualifying.
Percentage = (200,000 ÷ 4,200,000) × 100 = 4.76%
Since the non-qualifying income is below the 5% de-minimis threshold, ABC Logistics FZ-LLC remains a Qualifying Free Zone Person (QFZP) and can benefit from the 0% Corporate Tax rate.
Registration, deadlines and penalties
Every free zone company—qualifying or not—must register for corporate tax with the FTA, file returns within 9 months of its financial year-end and settle any tax due by the deadline.
New businesses are obliged to register within 3 months after the start of operations. If they don’t do so, they face penalties for late registration in the amount of AED 10,000.
Common pitfalls
Keep this in mind to avoid mistakes that can cost you the zero-tax privilege:
- Do not underestimate substance requirements—virtual office packages rarely suffice after 2025
- Do not ignore transfer pricing rules for related-party transactions
- Be careful not to fail the de-minimis test by invoicing mainland clients just above the 5% threshold
- Keep in mind that 0% does not apply automatically—QFZP status must be earned annually
How to structure your income safely
With the new tax rules, choosing the right licence, drafting compliant contracts and monitoring revenue split becomes critical. If you’re planning business setup in Dubai it’s wise to work with experienced advisors. They can help you model tax scenarios, keep your books in order, and coordinate with auditors and the FTA.
Even before this, it’s important to register with the appropriate free zone authority and choose the right business activity knowing exactly where and how you can optimize your taxes. This is where professional business consultants could provide valuable assistance.
Seizing the opportunity in 2025
Corporate tax has introduced new discipline, but the UAE remains one of the world’s lowest-tax, easiest-to-enter jurisdictions. By understanding the QFZP rules—and meeting them—free zone businesses can still enjoy near-zero tax while tapping Dubai’s strategic location, top-tier infrastructure and pro-innovation ecosystem. With sound planning, 2025 is the perfect moment to lock in advantages that other hubs can only envy.
