Free zone businesses are taxable persons§ for corporate tax. A Qualifying Free Zone Person is charged 0%§ on its Qualifying Income and 9%§ on taxable income that is not Qualifying Income. Being in a free zone does not, by itself, make income qualifying, and a business that misses a condition loses the status from the beginning of that tax period§.
Chart data
| Who and on what | Rate |
|---|---|
| Qualifying Free Zone Person, Qualifying Income | 0% |
| Qualifying Free Zone Person, other taxable income | 9% |
| Mainland, first AED 375,000 | 0% |
| Mainland, above AED 375,000 | 9% |
What are the conditions for the 0% rate?
Article 18 of the Corporate Tax Law sets five conditions§. In the order the law lists them, a free zone person must:
- maintain adequate substance in the UAE;
- derive Qualifying Income, as specified by Cabinet decision;
- not have elected to be taxed at the standard rates;
- comply with the arm's length principle and the transfer pricing documentation rules;
- meet any other conditions the Minister prescribes.
The fifth point is where most of the detail sits: what counts as qualifying activity, and how much non-qualifying revenue a business can have before it fails, are set in Cabinet and ministerial decisions that are amended over time. The FTA has also issued FTA Decision No. 6 of 2026§, which adds compliance procedures for Qualifying Free Zone Persons. Read the current versions on the FTA's legislation page, or have a registered tax agent read them with your contracts in hand.
Is the status test the same as the income test?
No, and owners routinely collapse the two. First comes the status: whether the business is a Qualifying Free Zone Person at all. Then comes each income stream: whether a given stream is Qualifying Income. Earning some non-qualifying income means that income is taxed at 9%§. Failing a condition is more serious, because the business stops being a Qualifying Free Zone Person from the beginning of that tax period§, and the 0% rate goes with it for the whole period.
That is why the risk is larger than it looks. Getting the classification of one contract wrong is not a question of 9% on that contract's revenue; tax is charged on taxable income, and a lost status puts the whole period's taxable income on the standard basis.
What does this look like in a real business?
A design studio licensed in a Dubai free zone that invoices clients abroad is in a very different position from the same studio invoicing a mainland retailer down the road. The second stream is the one to examine before the year end, not after it. The same goes for a trading company that starts selling into the local market because a customer asked, and never reconsiders its tax position.
Can a small free zone company use Small Business Relief instead?
Not while it is a Qualifying Free Zone Person: the exclusion is explicit, alongside members of multinational groups with consolidated revenue above AED 3.15 billion§. A small free zone company with modest revenue does not have both options at once. If your qualifying status is doubtful and your revenue is under AED 3,000,000§, that trade-off is worth modelling properly before the period ends.
What to do this quarter
- List your revenue streams by customer type and location, not by invoice total.
- Mark the ones you are not certain are qualifying, and total them.
- Check substance: people, premises and decisions actually in the UAE.
- Make sure related-party pricing is documented, because the transfer pricing rules are a condition, not a formality.
- Take the list, and the current decisions, to a registered tax agent. The question is cheap to ask and expensive to answer late.
For the mainland arithmetic, the corporate tax calculator applies the standard bands. It does not model free zone status.