Understanding the UAE Corporate Tax Regime

Effective for financial years starting on or after 1 June 2023, the UAE implemented a federal Corporate Tax under Federal Decree-Law No. 47 of 2022. The regime applies to all UAE businesses—including mainland, free zone, and offshore entities—as well as certain foreign entities operating in the UAE.

The Tax Rates

0% on taxable income up to AED 375,000 (to support small businesses and startups).

9% on taxable income exceeding AED 375,000.

0% for Qualifying Free Zone Persons on their Qualifying Income, subject to meeting strict substance and compliance requirements.

While the 9% rate is one of the most competitive globally, the compliance requirements are rigorous. All taxable persons must register for corporate tax, maintain audited financial statements (in many cases), and file annual tax returns—even if their tax liability is zero.

The Free Zone Exemption: Navigating the Complexities

The UAE Corporate Tax law provides a 0% tax rate for free zone entities, but this is not automatic. To benefit from this rate, a free zone company must become a "Qualifying Free Zone Person" (QFZP). This requires meeting several strict conditions:

Maintain adequate economic substance in the UAE.

Derive "Qualifying Income" (as defined by Cabinet Decisions).

Have not elected to be subject to the standard 9% corporate tax rate.

Comply with transfer pricing rules and documentation requirements.

Prepare and maintain audited financial statements.

If a free zone entity fails to meet any of these conditions during a tax period, it will lose its QFZP status for that period and the subsequent four tax periods, subjecting all its income to the standard 9% rate. Our tax advisory team works closely with free zone companies to ensure they meet and maintain these requirements.