How Do I Know if My UAE Business Qualifies for 0% Corporate Tax?
The UAE's 0% Corporate Tax rate for Free Zone businesses is one of the most attractive features of the country's tax regime. However, qualifying for it is not automatic.
You Must Be a Free Zone Person
The 0% rate is only available to businesses that are incorporated or registered in a UAE Free Zone. Mainland companies are subject to the standard 9% rate on taxable income above AED 375,000.
You Must Earn "Qualifying Income"
This is the most critical and complex condition. Not all income earned by a Free Zone company qualifies for the 0% rate. Qualifying income generally includes:
- Income from transactions with other Free Zone persons
- Income from certain qualifying activities, such as manufacturing, holding of shares and securities, treasury and financing services, and the distribution of goods in or from a Designated Zone
- Income from transactions with foreign persons (non-UAE)
Income from transactions with UAE mainland customers is generally not qualifying income and will be taxed at 9%.
You Must Not Have a Permanent Establishment on the Mainland
If your Free Zone company has a significant presence on the UAE mainland — such as a branch office, a warehouse, or employees regularly working from a mainland location — it may be deemed to have a "permanent establishment" on the mainland. This can disqualify you from the 0% rate for the income attributable to that mainland presence.
You Must Maintain Adequate Substance
Your Free Zone company must have genuine economic substance in the UAE. This means having real operations, qualified employees, and management decisions being made within the UAE. A "shell" company with no real activity will not qualify.
You Must Have Audited Financial Statements
To claim the 0% Qualifying Free Zone Person (QFZP) status, your company must prepare audited financial statements. This is a mandatory requirement, not optional.
The "De Minimis" Rule
Even if some of your income is non-qualifying, you may still be treated as a QFZP if your non-qualifying revenue does not exceed the lower of AED 5 million or 5% of your total revenue.
Conclusion
Qualifying for the 0% Corporate Tax rate requires careful planning and ongoing compliance. It is not simply a matter of having a Free Zone licence. You need to actively manage your income streams, maintain proper records, and have your accounts audited.
Not sure if your Free Zone business qualifies? Contact Khizr UAE for a detailed assessment.
WhatsApp Us: +971 50 428 3999
Email: info@khizruae.com
Disclaimer
The information in this article is for general informational purposes only and does not constitute financial, tax, or legal advice. Tax laws and regulations in the UAE are subject to change, and every business situation is unique. We strongly recommend consulting a qualified accounting professional before making any financial or business decisions. Khizr UAE accepts no liability for any loss or damage arising from reliance on the content of this article.
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