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UAE Golden Visa$545,000UAE Free Zone Corporate Tax.
Free zone companies are inside the UAE corporate tax regime, not exempt from it. The 0% rate belongs to a Qualifying Free Zone Person on Qualifying Income — and consultancy, the most commonly sold free zone licence, is not a Qualifying Activity. Written by a firm that files its own UAE return.
UAE free zone corporate tax at a glance.
Who gets 0%, who does not, and the conditions that must all hold at once, every year.
Qualifying Free Zone Person: the conditions in full
QFZP is a gate, not a menu. Every condition must hold simultaneously, in every tax period. Fail one and the 0% is gone for five years, not one.
The six conditions
- Be a Free Zone Person — a juridical person incorporated or registered in a UAE free zone.
- Maintain adequate substance in the free zone, with core income generating activity conducted there.
- Derive Qualifying Income as defined by Cabinet Decision 100 of 2023 and Ministerial Decision 229 of 2025.
- Not have elected to be subject to the standard 9% regime.
- Comply with transfer pricing — arm’s length pricing and documentation on related-party transactions.
- Prepare audited financial statements. Not optional, whatever your free zone requires.
And the de minimis threshold sits across all of it: non-qualifying revenue within the lower of AED 5 million or 5% of total revenue.
What “adequate substance” means
- Core income generating activity performed in the free zone, not merely invoiced from it.
- An adequate number of qualified employees, proportionate to the activity and its income.
- Adequate operating expenditure incurred in the free zone.
- Adequate assets and premises. A flexi-desk alone will not carry a claim of any size.
- Outsourcing is permitted to another free zone person or a related party, with adequate supervision retained.
Substance is proportionate. A holding company holding shares needs less than a distributor moving goods, but neither can be nil, and the file must be contemporaneous rather than assembled at audit.
What QFZP costs you
- You cannot join a UAE tax group. QFZP status and tax grouping are mutually exclusive.
- No pooling of group losses against profit, which can be worth more than the 0% where subsidiaries are loss-making.
- An audit every year, even in a zone that would not otherwise require one.
- Continuous de minimis monitoring, not an annual review — by year end the period is closed.
- Records for seven years, including the evidence supporting the claim.
Electing into the standard 9% regime is a legitimate choice. For groups with loss-making UAE subsidiaries, the tax group is frequently worth more than a 0% rate on a modest qualifying income.
Qualifying Activities and Excluded Activities
Set by Ministerial Decision 229 of 2025, which replaced MD 265 of 2023 and applies retroactively from 1 June 2023. If your activity is not on the qualifying side, the 0% is not available to you regardless of zone, substance or intention.
| Activity | Status | Notes | Typical business |
|---|---|---|---|
| Holding shares & securities | Qualifying | Held for 12 months or more | Holding companies, family offices |
| Manufacturing & processing | Qualifying | Goods or materials | Producers, assemblers |
| Logistics & distribution | Qualifying | Distribution in or from a designated zone | Traders with designated-zone presence |
| Fund, wealth & investment management | Qualifying | Subject to regulatory oversight | Licensed managers, DIFC and ADGM |
| Headquarter & treasury services | Qualifying | To related parties only | Group service companies |
| Ship ownership & operation | Qualifying | Including management | Shipping groups |
| Reinsurance & aircraft financing | Qualifying | Regulated activities | Specialist financial businesses |
| Consultancy & professional advisory | Excluded | Not on the qualifying list | Solo founders, agencies — the most-sold licence |
| Transactions with natural persons | Excluded | Limited exceptions apply | B2C businesses |
| Banking, insurance, finance & leasing | Excluded | Narrow carve-outs only | Regulated lenders and insurers |
| Immovable property | Excluded | Except commercial property let to another free zone person | Property investors |
| Intellectual property | Mostly excluded | Only qualifying IP income, on a nexus calculation | Licensors, IP holding |
Summarised from Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025 as at August 2026. The full text contains definitions, carve-outs and conditions that materially affect borderline cases — particularly around intellectual property, related-party services and distribution from designated zones. This table is orientation, not a determination of your position. The single most consequential line is consultancy, because it is the licence type most often sold on a 0% promise.
The de minimis rule and the five-year lockout
This is the provision that turns a small commercial decision into a five-year tax consequence, and it is the one most often discovered after the fact.
A Qualifying Free Zone Person may earn some non-qualifying revenue without losing its status, but only within the de minimis threshold: non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of total revenue in the tax period.
Note which way that works. A company with AED 20,000,000 of revenue has a 5% ceiling of AED 1,000,000, not AED 5,000,000 — the lower figure governs. A company with AED 200,000,000 of revenue has a ceiling of AED 5,000,000, because 5% would be higher. Small companies are constrained by the percentage; large ones by the absolute cap.
Breach it and the consequence is not proportionate. QFZP status is lost for that tax period and the four tax periods that follow. Five years taxed at 9% on all income, qualifying or not, with a retest available only in the sixth year. There is no partial relief and no early requalification.
In practice a single management fee invoiced to a mainland group company, one consultancy engagement taken opportunistically, or a period of UAE property rent is enough to cross the line for a smaller company. That is why the threshold is monitored continuously and why non-qualifying income streams are placed in a separate entity rather than run through the free zone company.
Status lost for the period of the breach and the four following. Taxed at 9% on all income throughout.
| Total revenue in the period | Non-qualifying ceiling |
|---|---|
| AED 2,000,0005% is lower than the cap | AED 100,000 |
| AED 10,000,0005% is lower than the cap | AED 500,000 |
| AED 50,000,0005% is lower than the cap | AED 2,500,000 |
| AED 100,000,0005% equals the cap | AED 5,000,000 |
| AED 500,000,000The AED 5m cap governs | AED 5,000,000 |
Illustrative. The calculation is on revenue rather than profit, and the definitions of qualifying and non-qualifying revenue carry their own conditions. Where a structure is close to the line, the safe answer is usually to separate the non-qualifying stream into its own entity rather than to manage the percentage.
Written from inside
the regime, not about it.
Sovera holds Meydan Commercial Licence 2531729, is supervised by the Ministry of Economy, and files its own UAE corporate tax return.
Substance, transfer pricing and the corporate tax file
A QFZP claim is only as strong as the file behind it. These are the six things an assessment will look for, and the order in which they are usually found missing.
Core activity performed where you say
The core income generating activity must actually happen in the free zone. For a holding company that is the exercise of ownership rights and board decisions; for a distributor it is the handling and movement of goods. Board minutes, contracts and operational records should be consistent with the free zone being where the work occurs, not merely where the invoice is raised.
Condition 1People and expenditure in proportion
Adequate qualified employees and adequate operating expenditure, judged against the income being claimed. A company reporting substantial qualifying income with no staff and negligible costs invites the obvious question. Proportionality cuts both ways: a small holding company needs correspondingly little, and does not need to manufacture activity it does not have.
ProportionateOutsourcing, done properly
Core activity may be outsourced to another free zone person or a related party, which is how most smaller structures meet the test in practice. The condition is that adequate supervision is retained — a written agreement, defined scope, and evidence the company directs and monitors the work rather than simply paying for it.
Supervision retainedTransfer pricing on related parties
Related-party transactions must be priced at arm’s length, with a disclosure filed alongside the corporate tax return and, above prescribed thresholds, a local file and a master file. This bites hardest on headquarter and treasury services, which are qualifying only when provided to related parties — so the very structure that secures the 0% also triggers the documentation.
Disclosure with the returnAudited financial statements
A condition of QFZP status in its own right, regardless of whether the free zone requires one. DMCC, DIFC and ADGM require audits anyway, so that cost sits inside their higher fee. In a zone with no audit requirement the cost is added rather than included, which is why a cheaper zone is frequently not cheaper for a company claiming the 0%.
Every yearContemporaneous, not reconstructed
The file is assembled during the year, not built afterwards. Revenue split tracked as it arises, board decisions minuted when taken, substance evidenced as it accumulates, records kept for seven years. A structure that is correct in principle and undocumented in practice fails at the first enquiry, and requalification after losing status takes five years.
Seven-year retentionFree zone corporate tax by business type
Six common cases and the honest answer for each. Three of them do not get the 0% and are sold it constantly.
Solo consultant or agency
9%, not 0%. Consultancy and professional advisory are not Qualifying Activities. A free zone consultancy licence is a perfectly good vehicle for 100% ownership, speed and cost — but the income is taxed at the standard rate above AED 375,000. This is the single most commonly mis-sold position in the UAE market.
Standard rateHolding company above subsidiaries
0%, genuinely. Holding of shares and securities is a Qualifying Activity, so a free zone holding company meeting the QFZP conditions pays 0% on that income. This is the clearest legitimate case for the rate, and the reason a holding structure sits so much more comfortably in a free zone than a trading business.
Dubai holding company →Trading into the UAE mainland
9% on that revenue, and it counts against de minimis. Mainland sales are generally non-qualifying income for a free zone company. Beyond the threshold you lose QFZP status entirely for five years. If UAE customers are a meaningful share of revenue, the answer is a mainland licence, not a free zone one.
Free zone vs mainland →Manufacturer or distributor
0%, with conditions. Manufacturing, processing and distribution in or from a designated zone are Qualifying Activities. Note FTA Decision No. 6 of 2026: designated-zone distributors must obtain an annual agreed-upon-procedures report from a UAE-licensed auditor, for tax periods beginning on or after 1 January 2026.
0% + AUP reportProperty investor
Generally 9%. Income from immovable property is excluded, other than commercial property located in a free zone and let to another free zone person. UAE rental income earned by a free zone company is therefore usually non-qualifying, taxed at 9%, and counting against the de minimis threshold at the same time.
Usually excludedGroup services company
Depends who you invoice. Headquarter and treasury services are Qualifying Activities when provided to related parties. The same service invoiced to a third party is not qualifying. A services company with a mixed client base needs the split monitored carefully, because it is the classic de minimis breach.
Related parties onlyUAE corporate tax deadlines and filing obligations
Registration and filing are compulsory for every company, including one paying nothing. Two changes land within the next four months.
| Obligation | Deadline | Applies to |
|---|---|---|
| Corporate tax registration with the FTA | Per the FTA timeline | Every company, including at 0% |
| Annual corporate tax return | Within 9 months of financial year end | Every company |
| Audited financial statements | Annually | Every QFZP claimant |
| Transfer pricing disclosure | With the return | Related-party transactions |
| Local file and master file | On request | Above prescribed thresholds |
| Agreed-upon-procedures report (FTA Decision 6 of 2026) | Annually, periods from 1 Jan 2026 | Designated-zone distributors |
| E-invoicing for B2B and B2G | Mandatory since July 2026 | In-scope transactions |
| Record retention | Seven years | Including QFZP evidence |
The obligation founders miss most
Registration and filing are compulsory regardless of the rate. A free zone company paying 0% as a Qualifying Free Zone Person still registers with the Federal Tax Authority, still files a return within nine months of its financial year end, still distinguishes qualifying from non-qualifying income on that return, and still submits a transfer pricing disclosure where it transacts with related parties. A company that never registered because it believed itself exempt is not exempt. It is unregistered, and penalties accrue from the deadline rather than from discovery.
UAE corporate tax mistakes we are asked to fix
These arrive at our desk already made. Every one was avoidable at the structuring stage, and several cannot be undone for five years.
| The mistake | Corporate tax consequence | What should have happened |
|---|---|---|
| Consultancy licence bought on a 0% promise | 9% on all advisory income above AED 375,000 | Check the activity against MD 229 of 2025 before buying |
| Management fee invoiced to a mainland group company | Non-qualifying revenue; de minimis breach at small scale | Invoice from a separate entity, not the free zone company |
| Never registered because “free zones are exempt” | Unregistered, with penalties accruing from the deadline | Register with the FTA and file, whatever the rate |
| Relied on guidance written against MD 265 of 2023 | Position assessed under a superseded framework | MD 229 of 2025 applies retroactively from 1 June 2023 |
| UAE rental income run through the free zone company | Non-qualifying, taxed at 9%, counts against de minimis | Hold property in a mainland entity |
| IP licensing assumed to qualify | Mostly excluded; only nexus-linked qualifying IP income | Design against the nexus rules from the outset |
| Relied on small business relief as a strategy | Relief now runs to periods ending 31 December 2029, and excludes QFZPs | Build the QFZP position, or plan for 9% |
| No audit commissioned in a zone that does not require one | QFZP condition unmet; corporate tax relief unavailable | Audited financials are a QFZP condition regardless of zone |
Why so much published guidance is wrong
UAE corporate tax is three years old and the detail has moved twice. Ministerial Decision 229 of 2025 replaced MD 265 of 2023 and applies retroactively to 1 June 2023, so a great deal of the free zone corporate tax content still ranking today describes a superseded framework. FTA Decision No. 6 of 2026 then added an agreed-upon-procedures requirement for designated-zone distributors that did not exist when most distribution structures were set up. Anything written before late 2025 should be checked against the current instruments rather than relied on.
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