The UAE has introduced Corporate Tax with effect from 1 June 2023 under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. While the standard corporate tax rate is 9%, certain Free Zone entities may benefit from a 0% rate if they qualify as a Qualifying Free Zone Person (QFZP).
At Finzoryx, we help founders and businesses understand how to structure operations to remain compliant while maximizing tax efficiency. Here’s a breakdown of what 0% corporate tax really means for Free Zone companies.
Who is a Qualifying Free Zone Person?
A Free Zone company is considered a Qualifying Free Zone Person if it meets the conditions set out in Article 18 of the Corporate Tax Law and Cabinet Decision No. 55 of 2023, clarified further by Ministerial Decision No. 139 of 2023.
To qualify, the company must:
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Maintain adequate substance in the UAE
- Core income-generating activities should be conducted in the Free Zone.
- Adequate employees, premises, and expenditure are required.
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Derive “Qualifying Income”
- Income from transactions with businesses located outside the UAE.
- Income from transactions with other Free Zone persons.
- Certain regulated activities within the Free Zone.
- Income specifically listed as qualifying under Ministerial Decision No. 139 of 2023.
- Not have elected to be subject to regular Corporate Tax.
- Comply with transfer pricing rules under OECD-based UAE TP Regulations.
- Meet all regulatory requirements, including audited financial statements.
If any of these conditions are not met, the company automatically loses QFZP status and is taxed at the standard 9%.
What Income Qualifies for 0%?
According to Ministerial Decision No. 139 of 2023:
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Qualifying transactions include:
- Business conducted with other Free Zone persons.
- Income from exports of goods or services to foreign markets.
- Certain income from holding activities, distribution of goods, and reinsurance services.
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Exclusions (taxable at 9%) include:
- Income from transactions with the UAE mainland (unless specifically qualifying, such as “pass-through” trading where goods are imported and re-exported without entering mainland).
- Non-qualifying activities not listed in the Ministerial Decision.
Key Takeaway
Being in a Free Zone does not automatically guarantee 0% corporate tax. Only companies that qualify as a QFZP and derive Qualifying Income benefit from the 0% rate.
Failing to meet the conditions — for example, by earning too much mainland income or not maintaining proper substance — could mean your business is taxed at 9%.
Finzoryx Approach
At Finzoryx, we specialize in helping Free Zone companies:
- Assess whether they qualify for the 0% rate.
- Structure transactions to maximize Qualifying Income.
- Ensure compliance with substance, transfer pricing, and reporting rules.
- Protect against penalties for incorrect tax treatment.
📞 Talk to Finzoryx today to check if your Free Zone company qualifies for the 0% Corporate Tax rate.
✉️ connect@finzoryx.com | 📱 0503978121