UAE Corporate Tax Guide for Free Zone Companies (2026)

The UAE introduced a 9% federal corporate tax effective June 1, 2023. The tax applies to all businesses including free zone companies. The first AED 375,000 of taxable income is taxed at 0%. Only income above this threshold is subject to 9%. The UAE has also signed over 140 double tax treaties.

Free zone companies can access a 0% corporate tax rate as Qualifying Free Zone Persons if they: maintain adequate substance in the UAE (qualified employees and premises), derive qualifying income (not from mainland activities), and comply with transfer pricing rules. Qualifying income includes income from activities conducted within the free zone and with other free zone entities. See DIFC financial services license costs for a premium QFZP-eligible jurisdiction.

Qualifying income includes: revenue from activities conducted within the free zone, transactions with other free zone entities, and passive income (dividends, capital gains). Non-qualifying income includes mainland sales, services performed outside the free zone, and certain excluded activities. Non-qualifying income is taxed at 9%. Compare DMCC vs DIFC to see which zone offers better tax-eligible structures for financial services.

All UAE companies must register for corporate tax, maintain proper accounting records, and file annual tax returns. Free zone companies claiming QFZP status must maintain audited financial statements. The first tax return is due within 9 months of the financial year end. Penalties for non-compliance can reach AED 10,000.

To maintain QFZP status, companies must demonstrate: adequate premises in the UAE, qualified full-time employees, adequate operating expenditure, and core income-generating activities conducted in the UAE. Shell companies and pure holding companies have reduced requirements.