What is a Free Zone for Corporate Tax Purposes?

A Free Zone for corporate tax purposes is a specifically designated geographic area within the UAE that enjoys preferential tax treatment. These zones are determined by Cabinet Decisions based on recommendations from the Minister.
For VAT purposes, Designated Zones, under Federal Decree-Law No. 8 of 2017, are considered Free Zones. Businesses should consult their Free Zone Authority to confirm their Free Zone status for Corporate Tax purposes.

Conditions to Qualify as a Free Zone Person

To benefit from the 0% Corporate Tax rate, a Free Zone Person must meet several key conditions:

  • Maintain adequate substance within the Free Zone,  
  • Earn Qualifying Income from approved activities,
  • Avoid opting into the standard Corporate Tax regime
  • Comply with the arm’s length principle for transactions with Related Parties
  • Maintain accurate Transfer Pricing documentation
  • Prepare and submit audited financial statements
  • Ensure that non-qualifying income does not exceed AED 5 million or 5% of total revenue.

Failure to meet these conditions could result in the loss of Qualifying Free Zone Person status, resulting in the imposition of the standard 9% Corporate Tax

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