Corporate Tax for Free Zone Companies in the UAE: QFZP Checklist, Qualifying Income, 0% vs 9%

In short: As of October 2026, a UAE free zone company pays 0% corporate tax only on qualifying income, and only if it is a Qualifying Free Zone Person: it keeps adequate substance in the zone, earns qualifying income, has not elected out, follows transfer pricing rules, keeps audited accounts and keeps non-qualifying revenue within 5% or AED 5 million. Other taxable income is taxed at 9%.

This guide answers one question: will your free zone company pay 0% or 9% corporate tax? It gives you the six-condition QFZP checklist, a table of qualifying and non-qualifying income, the designated zone rule for goods, the de minimis arithmetic, three worked examples, what happens if you fail, and the deadlines and penalties.

Registration itself works the same way for free zone and mainland companies, and our corporate tax registration guide covers the EmaraTax steps. This page is about what comes after: whether your income is taxed at 0% or 9%. Every rule below was checked on 25 October 2026 against Federal Decree-Law No. 47 of 2022 as published by the Ministry of Finance, Cabinet Decision No. 100 of 2023, Ministerial Decision No. 229 of 2025 (which replaced Ministerial Decision No. 265 of 2023), Ministerial Decision No. 84 of 2025, the FTA’s Free Zone Persons guide (CTGFZP1) and its October 2026 clarification TAXP010.

Do free zone companies pay corporate tax in the UAE?

Yes, they are within the tax, though many pay 0% on most of their income. The Ministry of Finance says juridical persons established in a free zone are taxable persons that must comply with the Corporate Tax Law, and that a free zone person meeting the conditions of a Qualifying Free Zone Person can benefit from a 0% rate on its qualifying income. Article 3(2) of the law sets two rates for a QFZP: 0% on qualifying income and 9% on taxable income that is not qualifying income.

A “free zone person” is a juridical person incorporated, established or registered in a free zone, including a branch of a foreign company registered there. Sole traders and freelancers holding a free zone permit in their own name are natural persons, not free zone persons, so the QFZP regime does not apply to them.

Two old ideas cause most of the confusion:

• “My zone gives a 50-year tax exemption.” Article 18(4) of the law lets the 0% rate apply for the remainder of the zone’s incentive period, but only to a QFZP and only on qualifying income. The zone’s own law does not switch off federal corporate tax.
• “Every company pays 0% on the first AED 375,000.” That band is for companies under the standard rules. The FTA guide states that a QFZP does not get it: its non-qualifying taxable income is taxed at 9% from the first dirham.

Am I a Qualifying Free Zone Person? The six-condition checklist

Article 18(1) of the law lists five conditions, and Article 5 of Ministerial Decision No. 229 of 2025 adds two more under the “other conditions” heading. Read together they come to six practical tests. You must meet all six, at all times during the tax period.

Sources: Federal Decree-Law No. 47 of 2022, Article 18; Cabinet Decision No. 100 of 2023; Ministerial Decisions No. 229 of 2025 and No. 84 of 2025; FTA Corporate Tax Guide CTGFZP1, sections 3 and 4.

What counts as qualifying income?

Cabinet Decision No. 100 of 2023 treats four kinds of income as qualifying, provided the income is not attributable to a branch or permanent establishment outside the free zone and is not from the property or intellectual property cases taxed separately: income from other free zone persons (unless the activity is excluded), income from non-free zone persons but only for qualifying activities that are not excluded, income from qualifying intellectual property, and any other income as long as the de minimis test is met.

Sources: Cabinet Decision No. 100 of 2023, Articles 3 to 6; Ministerial Decision No. 229 of 2025, Articles 2 and 3; FTA guide CTGFZP1, sections 4, 7, 10 and 11.

The qualifying activities and the excluded activities

Ministerial Decision No. 229 of 2025, issued on 28 August 2025, replaced the earlier list in Ministerial Decision No. 265 of 2023. The Ministry of Finance said the main changes widen commodity trading (industrial chemicals, by-products and environmental commodities such as carbon credits, where a quoted price exists), allow treasury activity for the company’s own account, and let designated zone distributors sell to public benefit entities.

• Qualifying activities (Article 2(1)): manufacturing of goods or materials; processing of goods or materials; trading of qualifying commodities; holding shares and other securities for investment (held for at least 12 months); ownership, management and operation of ships in international transport; reinsurance; fund management; wealth and investment management (both regulated by a UAE authority); headquarter services to related parties; treasury and financing services to related parties or for its own account; financing and leasing of aircraft; distribution of goods or materials in or from a designated zone; logistics services; and activities ancillary to these.
• Excluded activities (Article 2(2)): transactions with natural persons (except for the ship, fund management, wealth management and aircraft activities); banking; insurance (reinsurance and captive insurance aside); regulated finance and leasing (with carve-outs); owning or exploiting immovable property, other than free zone commercial property dealt with free zone persons; and activities ancillary to these.

Consulting, marketing, recruitment, software development services, e-commerce to consumers and general trading are not on the qualifying list. They can still earn qualifying income from free zone customers, but income from mainland customers will be non-qualifying.

The designated zone rule for goods

For a trading company, the qualifying activity is “distribution of goods or materials in or from a Designated Zone”. Three conditions have to line up:

1. The zone must be a designated zone for corporate tax. That means a zone on the VAT designated zones list (Cabinet Decision No. 59 of 2017, as amended) that is also a free zone for corporate tax. The FTA’s TAXP010 clarification of October 2026 stresses that a VAT designated zone is not automatically a corporate tax designated zone and tells businesses to confirm with their free zone authority.
2. Imported goods must come in through the designated zone. Goods already in the UAE when you buy them do not need to pass through the zone (FTA guide, examples 84 and 85).
3. The buyer must resell or process the goods for resale, or be a public benefit entity. Selling to the end user is not this qualifying activity.

A company in an office-only free zone that is not a designated zone cannot use this activity, so its goods sales to mainland customers are non-qualifying. Its sales to other free zone companies that are the beneficial recipients still qualify. Our zone guides note which zones appear on the FTA’s VAT designated zones list, for example Ajman Free Zone, Fujairah Free Zone and Dubai South; for corporate tax, confirm the status of your exact location with the authority. If you import, you also need a customs code.

The de minimis test, with the numbers

Non-qualifying revenue is revenue from excluded activities, from non-qualifying activities with non-free zone persons, and from free zone customers that are not the beneficial recipient. Some revenue is left out of both sides of the sum: revenue of a branch or permanent establishment outside the free zone, the separately taxed property income, and non-qualifying intellectual property income.

The test is strict. The FTA guide’s own example is a start-up whose only revenue in its first year is AED 100 from selling an office chair to an employee: that sale is a transaction with a natural person, it is 100% of revenue, and the company is not a QFZP for that year and the following four.

How is a qualifying free zone person taxed?

• 0% on qualifying income.
• 9% on non-qualifying taxable income that stays within the de minimis limit, and on income attributable to a branch or permanent establishment outside the zone and the separately taxed property income. There is no AED 375,000 0% band for a QFZP.
• Reliefs you give up. The FTA guide lists what a QFZP cannot use: Small Business Relief, tax groups, Qualifying Group Relief, Business Restructuring Relief and the transfer of tax losses.
• Same compliance as everyone else: registration, an annual return, payment, and records kept for seven years after the end of the tax period.

Because of these trade-offs, a free zone company with mostly mainland or consumer income may be better off under the standard rules. Article 19 lets it elect out of QFZP status; see the section on failing below.

Worked examples: 0% or 9%?

These are illustrations with round figures, not real clients. Figures are revenue unless stated, and tax is charged on taxable income (profit), not on revenue.

Example 1: a free zone trading company selling to the mainland

A company in a zone confirmed as a designated zone for corporate tax imports electronics through its zone warehouse. In 2026 it has AED 8,000,000 of revenue:

De minimis: non-qualifying revenue is AED 300,000, which is 3.75% of AED 8,000,000. The limit is AED 400,000 (5%), below AED 5 million, so the test is passed. The profit on the AED 300,000 is taxed at 9%; the rest is at 0%.

The same company, one change. If the contractor sales had been AED 450,000, non-qualifying revenue would be AED 500,000, or 6.25%. The company fails the test, loses QFZP status from 1 January 2026 and is taxed under the standard rules for 2026 to 2030. If it were in an office-only zone that is not a designated zone, the AED 6,500,000 of mainland sales would be non-qualifying too, and 0% would never have been available on them.

Example 2: a consultancy with mainland clients

A management consultancy licensed in a free zone that is not a designated zone has AED 2,150,000 of revenue: AED 1,200,000 from free zone companies, AED 900,000 from mainland companies and AED 50,000 from individuals.

• Consulting is not a qualifying activity, so the AED 900,000 from mainland clients is non-qualifying. The AED 50,000 from individuals is an excluded activity.
• Non-qualifying revenue is AED 950,000, about 44% of revenue. The limit is about AED 107,500. The company fails and is not a QFZP for this period and the next four.
• It is then taxed like a mainland company: 0% on taxable income up to AED 375,000 and 9% above.

If instead its only non-free zone income were AED 60,000 from one mainland company and it had no individual clients, non-qualifying revenue would be about 4.8% of AED 1,260,000. It would pass, pay 0% on the free zone income and 9% on the profit from the AED 60,000.

Example 3: income earned under the Dubai mainland operating permit

A Dubai free zone consultancy obtains DET’s Free Zone Mainland Operating Permit (AED 5,000 for up to six months under Executive Council Resolution No. 11 of 2025) and earns AED 400,000 from mainland clients in its year. DET’s announcement says such revenue is subject to 9% corporate tax and must be kept in separate records in line with FTA requirements. How the corporate tax rules reach that result depends on how the work is done:

• If the mainland work creates a place of business or other presence outside the free zone (a fixed place of business, or a dependent agent), it is a domestic permanent establishment. Its income is taxed at 9%, and its revenue is left out of the de minimis calculation (Cabinet Decision 100/2023, Arts. 4(3)(b) and 5).
• If there is no permanent establishment, the AED 400,000 is income from a non-qualifying activity with non-free zone persons. It counts as non-qualifying revenue, and at that size it would break the de minimis limit for most small consultancies, taking the whole company out of QFZP status for five periods.

Whether permit work creates a permanent establishment is a question of fact. Confirm it with your tax adviser before you apply for the permit, not after the year end.

What happens if a free zone company fails a QFZP condition?

Under Article 18(2) of the law and Article 5(2) of Ministerial Decision No. 229 of 2025, a QFZP that fails any condition at any time during a tax period stops being a QFZP from the beginning of that tax period and for the following four tax periods. For a calendar-year company that fails in 2026, that means standard rules for 2026, 2027, 2028, 2029 and 2030.

• Under the standard rules the company pays 0% on taxable income up to AED 375,000 and 9% above, and can use the reliefs a QFZP cannot.
• Electing out on purpose has the same five-period length. Under Article 19 the election takes effect from the start of the period in which it is made or the next one. The FTA guide says it can be made up to the due date of that period’s return, and it lasts for that period and the next four.
• There is no partial pass. One bad month, an unaudited year or a lapsed office lease that leaves no substance in the zone affects the whole period.

Corporate tax deadlines for free zone companies

For a calendar-year company, the return and payment for 2026 are due by 30 September 2027. Plan the audit early: the audited accounts are a QFZP condition, so they need to be ready before you file as one.

Penalties to know

The FTA’s clarification CTP006 waives the AED 10,000 late registration penalty if the company files its first tax return within 7 months of the end of its first tax period instead of 9; payment is still due within 9 months. To see these alongside other company fines, try our company penalty exposure calculator.

Can a free zone company use Small Business Relief?

Not while it is a QFZP: the FTA’s Free Zone Persons guide lists Small Business Relief among the reliefs a QFZP cannot use, citing Article 3(2) of Ministerial Decision No. 73 of 2023. A small free zone company that is not a QFZP, because it failed a condition or elected out, can look at Small Business Relief like any resident company if it meets the conditions. So it is one route or the other, not both. Our separate guide on Small Business Relief covers the thresholds and how to elect.

Owners abroad and remote-run free zone companies

Many free zone companies are owned by founders who live abroad. That is allowed, but the substance condition looks at where core income-generating activities take place and who performs them. If every decision, sale and delivery is done by the owner from outside the UAE and nobody works in the zone, discuss substance with your tax adviser before claiming 0%. Our company setup guide for non-residents explains which setup steps can be done remotely.

Common mistakes with free zone corporate tax

• Assuming the zone makes you exempt. The zone’s licence or its own law does not decide your rate; the six conditions do.
• Not registering because all income will be 0%. Every free zone company registers and files. Late registration costs AED 10,000.
• Ignoring sales to individuals. Even small consumer sales are excluded-activity revenue and eat into a de minimis limit that may be only tens of thousands of dirhams.
• Treating any mainland customer as fine. Mainland income qualifies only for the listed activities. A consultancy or agency with mainland clients usually fails the test.
• Trading goods from an office-only zone and expecting the distribution activity to apply. It needs a designated zone and a reselling customer.
• Skipping the audit because revenue is under AED 50 million. That threshold is for other companies; a QFZP needs audited accounts every period.
• Starting mainland work under the operating permit without checking the corporate tax effect first.
• Booking related-party charges without transfer pricing support. Arm’s length dealing is itself a QFZP condition.
• Confusing VAT designated zones with corporate tax status. They are separate lists and separate tests; see our VAT registration guide for the VAT side.

How MIRDXB PRO helps free zone companies

We help you choose a zone and licence activities with your customers in mind, form the company, register it for corporate tax and VAT on EmaraTax where you authorise us to, and keep the PRO side running: visas, establishment cards, renewals and the mainland operating permit. Our fee is fixed and quoted on WhatsApp before you pay.

What we are not. MIRDXB PRO is not a registered tax agent with the FTA and is not an auditor. We do not assess whether you are a Qualifying Free Zone Person, give tax advice, prepare corporate tax returns or audit accounts. For a QFZP assessment, your return and your audited financial statements, use a registered tax agent and a qualified auditor; the FTA publishes the list of registered tax agents.

Comparing zones first? See our guide to all UAE free zones, the Dubai free zones list and free zone vs mainland. The start-a-business route map covers the whole setup, and our new company compliance checklist puts corporate tax on one timeline with VAT, UBO, visas and WPS. For recurring government work, see our monthly PRO plans for companies.

Frequently asked questions