The qualifying free zone person regime
A free zone company that meets strict conditions pays 0% corporate tax on its qualifying income. Missing a condition means 9% on everything for five years.
Conditions
- Maintain adequate substance in the free zone: assets, qualified staff and operating expenditure in proportion to the activity
- Earn qualifying income
- Stay within the de minimis limit for non-qualifying revenue
- Not elect to be taxed under the standard regime
- Comply with transfer pricing rules
- Prepare audited financial statements
Qualifying income
Broadly, income from transactions with other free zone persons, and income from qualifying activities with anyone, such as manufacturing, trading of qualifying commodities, holding shares, headquarter and treasury services, and certain logistics and fund management activities. Income from transactions with mainland persons is generally non-qualifying unless it falls within specific categories.
The de minimis rule
Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower.
What happens if you fail
A company that fails the conditions loses the regime for the tax period in which it fails and the following four periods.
Common questions
Does every free zone company get 0% tax?
No. Only those meeting all the conditions, and only on qualifying income.
Official sources
We check our guidance against these official sources. Always confirm current fees and rules before acting.