One common reason for registering a company in a UAE free zone is the 0% corporate tax rate. But the rate is not automatic. The UAE corporate tax law grants it only to a "Qualifying Free Zone Person" and only on its "qualifying income". This article is based on announcements and official documents of the UAE Ministry of Finance and the Federal Tax Authority, checked on 24 October 2026.
Rates
| Part of income | Rate | Source |
|---|---|---|
| Qualifying income of a Qualifying Free Zone Person | 0% | Ministry of Finance; Federal Tax Authority |
| Profit attributable to its permanent establishment on the UAE mainland or in a foreign country | 9% | Federal Tax Authority, announcement of 26 May 2024 |
The conditions
The Federal Tax Authority's "basic tax information bulletin" lists six conditions:
| Condition | Explanation |
|---|---|
| Adequate substance | Maintaining adequate substance in the UAE; the Authority's guide says the core income-generating activities must be carried out in the free zone with adequate staff, assets and expenditure, and that this is assessed case by case |
| Qualifying income | Deriving "qualifying income" |
| No election for the standard rate | The person must not have elected to be taxed at the standard rates |
| Transfer pricing | Complying with the transfer pricing rules and documentation of the corporate tax law |
| De minimis threshold | Non-qualifying revenue must not exceed 5% of total revenue or AED 5,000,000, whichever is lower |
| Financial statements | Preparing audited financial statements; the Authority's guide says this applies whatever the amount of revenue |
Losing the conditions
According to the text of Ministerial Decision No. 229 of 2025 (and before it Decision No. 265 of 2023) seen through the search index, and the Federal Tax Authority's "Free Zone Persons" guide, if the person fails one of the conditions in a tax period, it ceases to be a "Qualifying Free Zone Person" from the beginning of that period and for the following 4 tax periods. So one mistake can remove the 0% rate for five years. Weigh this rule with your accountant before any change in activity or customers.
Qualifying and excluded activities
On 3 September 2025 the Ministry of Finance announced that "Ministerial Decision No. 229 of 2025" replaced Decision No. 265 of 2023. The announced changes:
- the words "in raw form" were removed from the scope of trading in qualifying commodities; trading in metals, minerals, industrial chemicals, energy and agricultural commodities and their associated by-products is accepted, provided there is a "quoted price";
- trading in environmental commodities was added to the scope;
- "self-investment" was added to treasury and financing services, meaning these services for related parties or on the person's own account;
- distributing goods in or from a "designated zone" can include transactions with public benefit entities, without affecting the de minimis threshold.
Alongside it, "Ministerial Decision No. 230 of 2025" names the recognised price reporting agencies for this purpose.
According to the text of Decision No. 229 in the search index, some "excluded" activities are banking, insurance, finance and leasing, owning or exploiting immovable property, and transactions with individuals; each has its own carve-outs. For example, commercial property in a free zone is not excluded when the other party is a free zone person.
What is "non-qualifying revenue"?
According to the text of the ministerial decision in the search index, non-qualifying revenue includes:
- revenue from excluded activities;
- revenue from activities that are not qualifying activities where the other party is a person outside the free zone;
- revenue from transactions with a free zone person that is not the actual "beneficial recipient" of the goods or services.
Two examples
These examples are hypothetical and only show the de minimis threshold.
| Company | Total revenue | Non-qualifying revenue | 5% of total revenue | Cap | Result |
|---|---|---|---|---|---|
| A | AED 20 million | AED 800,000 | AED 1 million | Lower of 1 million and 5 million, i.e. 1 million | Below the cap |
| B | AED 200 million | AED 6 million | AED 10 million | Lower of 10 million and 5 million, i.e. 5 million | Above the cap; the condition is lost |
Although company B's non-qualifying revenue is only 3% of total revenue, it has passed the AED 5 million cap. Even if it meets the other conditions, it is not a qualifying person in that period and the four periods after it.
Practical points
- Record and track sales to UAE mainland customers and to individuals separately; these usually count toward the de minimis threshold.
- Prepare audited financial statements for each period, even if revenue is small.
- Document real substance in the free zone, meaning staff and expenditure.
- A free zone company must also register and file corporate tax returns; see our article on UAE corporate tax.
Royal Golden does not give tax advice. This article is general information and not tax or legal advice.
Sources
- UAE Ministry of Finance, two ministerial decisions on qualifying and excluded activities in free zones and on recognised price reporting agencies (3 September 2025) — https://mof.gov.ae/en/news/ministry-of-finance-issues-two-ministerial-decisions-on-qualifying-activities-and-excluded-activities-in-free-zones-for-corporate-tax-purposes-and-on-recognised-price-reporting-agencies/ (checked on 24 October 2026)
- UAE Federal Tax Authority, corporate tax guide on free zone persons issued (26 May 2024) — https://tax.gov.ae/en/media.centre/news/federal.tax.authority.issues.corporate.tax.guide.on.free.zone.persons.aspx (checked on 24 October 2026)
- UAE Ministry of Finance, corporate tax in the UAE — https://mof.gov.ae/en/public-finance/tax/corporate-tax-in-the-uae/ (checked on 24 October 2026)
- UAE Federal Tax Authority, basic tax information bulletin: free zone person — https://tax.gov.ae/Datafolder/Files/Pdf/2024/CT%20Bulletin/Basic%20Tax%20Information%20bulletin-%20Free%20Zone%20Person-English.pdf (via the search index; checked on 24 October 2026)
- UAE Federal Tax Authority, corporate tax guide: free zone persons (May 2024) — https://tax.gov.ae/Datafolder/Files/Guides/CT/Free%20Zone%20Persons%20-%2020%2005%202024%20final%20for%20GCD.pdf (via the search index; checked on 24 October 2026)
- UAE Ministry of Finance, Ministerial Decision No. 229 of 2025 — https://mof.gov.ae/wp-content/uploads/2025/09/EN-Ministerial-Decision-No.-229-of-2025-Regarding-Qualifying-Activities-and-Excluded-Activities.pdf (via the search index; checked on 24 October 2026)
- UAE Ministry of Finance, Ministerial Decision No. 265 of 2023 — https://mof.gov.ae/wp-content/uploads/2023/11/27.10.23-EN-Ministerial-Decision-No-265-of-2023-Regarding-Qualifying-Activities-and-Excluded-Activities.pdf (via the search index; checked on 24 October 2026)