The introduction of the UAE Corporate tax under the Federal Decree Law No. 47 of 2022 has changed the UAEтАЩs status as a global business destination. With its implementation taking place from 1st June 2023, this new law has been an integral step in evolving and diversifying the nationтАЩs economic scene. It not only accelerates the UAEтАЩs development and strategic objectives but also demonstrates the countryтАЩs commitment to complying with global tax standards and eliminating harmful tax practices. Plus, this transformative tax will reduce the UAEтАЩs reliance on oil revenue and pave a stable path towards economic sustainability.
Now, being a Free Zone Company wonтАЩt guarantee you a tax-free status in the nation. If not eligible, your firm has to incur the standard 9% corporate tax rate in UAE for its businesses. However, being one of the lowest corporate tax rates in the world, the UAE still maintains its status as an attractive destination to start your business.
If you are a free zone firm, this guide will take you through some key aspects of Corporate tax, including qualifying activities and compliance.
Free Zone Companies in the UAE and Corporate Tax
From enjoying 100% tax exemption to incurring regular rates, questions have arisen on this new change in the UAEтАЩs corporate world. However, it is essential to note that firms dealing and earning revenue from eligible (tax-exempt) business activities will still enjoy original exemptions from tax brackets.
As long as a firm is incorporated, established, or registered in a free zone, it qualifies for the tax exemptions in free zones. Additionally, it can enjoy certain tax exemptions on income earned from transactions with mainland UAE businesses or foreign jurisdictions. On the other hand, corporate tax for free zone companies engaged in excluded activities is still 9% as specified.
Qualifying or tax-exempt activities
Several activities fall under the purview of the qualifying income corporate tax UAE. Here are some major categories of activities that are considered тАЬqualifiedтАЭ for tax exemption under Article 18 of the UAE Corporate Tax Law:
- Manufacturing and processing goods or materials.
- Acting as a holding company.
- Reinsurance services under the stateтАЩs supervision.
- Management and operation of ships.
- Management of wealth and investments.
- Financing and leasing aircraft and their interchangeable components.
- Logistics services.
- Distributions in or from a designated zone
The new corporate tax levy is strategically designed to further enhance the countryтАЩs attractiveness in vital sectors, encouraging economic diversification and foreign investment.
However, itтАЩs important to note that earning income from excluded activities or any other income that doesnтАЩt qualify will result in the free zone company being disqualified from tax exemption. The excluded activities on the UAE corporate tax list are as follows:
- Banking, insurance and other specific financial services.
- Selling to individuals and not companies.
- Owning or renting properties to someone other than Free Zone companies.
- Licensing brand names or intellectual property.
De Mimimis Rule
If a qualifying company earns some of its revenue from non-qualifying activities, it too is disqualified from the tax exemption. However, this is where the тАЬDe Minimis rule UAE corporate taxтАЭ comes into play. This rule allows the qualifying free zone entity to earn a small amount from the excluded activities without being disqualified.
- The income earned from excluded activities must be below the De Minimis amount.
- The amount can be lower, up to 5% of the total revenue or AED 5 million, whichever is lower.
One of the key challenges for today’s entrepreneurs is that depending on the size and activities of a free zone company, a portion or the entirety of its income could be taxable under the new corporate taxation framework. Businesses must assess their activities and income sources to determine their tax liability accurately to be compliant with the new laws.
UAE Corporate Tax Rate & Thresholds (New)
As per the UAE corporate tax 2025, 0% corporate tax is levied on taxable business profits up to AED 375,000, offering relief to startups and small enterprises. This Corporate tax threshold UAE means:
- Income up to AED 375,000 is taxed at 0% rate.
- Any income above AED 375,000 is taxed at 9% rate.
For instance, if your firm earned an annual income of AED 500,000, this will be your tax calculation:
AED 375,000 x 0% = 0 AED
AED 125,000 x 9% = AED 11,250 (tax due)
This is why it is advised to refer to Shams Free Zone to know the ins and out of corporate tax services while learning some smart financial tips to sustain startups.
Corporate Tax Compliance & Filing for Free Zone Companies (New)
All Free Zone and mainland businesses must register with the Federal Tax Authority to maintain authorization and corporate tax compliance UAE. Here is a list of everyone who must register for the Corporate Tax:
- Mainland Businesses: Registered firms will have to pay the standard 9% UAE corporate tax rate for any income over 375,000 AED.
- Free Zone businesses with non-qualifying income: Non-QFZP has to register with the Federal authority for corporate tax filing UAE.
- Foreign firms with UAE presence: If you are a foreign firm with a permanent establishment in the UAE or earn UAE-sourced income, you must register.
- Freelancers and Sole Proprietors: For professional businesses earning over AED 1 million annual revenue, registration is mandatory.
Note: Every eligible business in the UAE must register with the Federal Taxation Authority by 31st March 2025 or will have to pay a penalty of AED 10,000.
Documents Required for the UAE Corporate Tax Compliance
The following is a list of all the necessary documents for the UAE corporate tax 2025:
| Document | Purpose / Key Details |
| Trade License & Registration | Confirms business identity, structure, and eligibility within the UAE. |
| Financial Statements | Income, balance sheet, and cash flow statements for accurate tax calculation. |
| General Ledger | Detailed transaction record supporting income and expense claims. |
| Bank Statements | Verifies cash flow and business transactions. |
| Revenue & Expense Records | Validates invoices, payroll, and receipts for deductions. |
| Fixed Asset Register | Lists assets and depreciation schedules. |
| VAT Records | Ensures VAT and tax return consistency. |
| Transfer Pricing Documents | Required for related-party or cross-border dealings. |
| Supporting Schedules | Explains adjustments and exemptions. |
| Corporate Tax Certificate | Confirms FTA registration and TRN. |
Conclusion
Understanding how the new tax regime impacts your free zone entity is of the utmost importance. As the UAEтАЩs economy continues to diversify, tax regulations evolve accordingly. To navigate these changes effectively and ensure compliance while maximizing your businessтАЩs growth potential, itтАЩs advisable to consult with experts who are well-versed in UAE corporate tax laws or reach out to Shams Free Zone for support. You can enjoy business setup packages and some financial tips to sustain startups from their expert team. For more information and personalized guidance, visit www.shams.ae or call Shams authorities at 800 (Shams) 74267.
Frequently Asked Questions (FAQs) on Corporate Tax in UAE Free Zones
1. What is the corporate tax rate in the UAE?
The corporate tax rate in the UAE is 0% for taxable profits up to AED 375,000. Profits above AED 375,000 are taxed at 9% .
2. What are excluded activities under UAE corporate tax?
Banking, brand name licensing and selling goods directly to individuals are excluded activities under UAE corporate tax.
3. Do free zone companies pay corporate tax in the UAE?
Free zone companies that are earning from qualifying activities are eligible for tax exemption. Other than those firms, every business has to pay corporate tax even in the free zone.
4. Which activities qualify for 0% corporate tax in the UAE?
Manufacturing of goods, logistical services and management of funds are some of the qualifying activities that qualify for 0% corporate tax in the UAE.
5. Are free zone companies exempt from corporate tax?
No, only companies that are dealing in qualifying activities are exempted from corporate tax.
6. What is the new corporate tax in UAE 2025?
The new corporate tax in the UAE 2025 introduced the standard 9% tax rate for every non-qualifying activity firm on income over 375,000 AED.
