UAE corporate tax for Free Zone and Mainland companies: a decision map

A mainland company normally follows the UAE's general corporate-tax rates: 0% on taxable income up to AED 375,000 and 9% above that threshold. A free-zone company does not automatically receive 0%. It must qualify as a Qualifying Free Zone Person, and 0% then applies only to Qualifying Income.

The company label is therefore only the first fact. The tax result follows the activity, counterparty, beneficial recipient, people and assets, permanent establishments, related-party pricing, financial statements and compliance record.

The rate map

This is a map, not a calculation. Exempt persons, natural persons, tax groups, incentives, reliefs and international structures require separate analysis.

What is a Qualifying Free Zone Person?

A Qualifying Free Zone Person is a free-zone juridical person that meets all statutory conditions for the special regime. According to the Federal Tax Authority's free-zone materials, the conditions include:

1. maintaining adequate substance in a free zone;
2. deriving Qualifying Income;
3. not electing to use the standard corporate-tax regime;
4. applying the arm's-length principle;
5. maintaining required transfer-pricing documentation;
6. preparing and maintaining audited financial statements; and
7. keeping non-qualifying revenue within the de-minimis limit.

The conditions operate together. A company does not qualify merely because its licence has a free-zone address, its customers are abroad or its activity sounds similar to a qualifying activity.

What counts as Qualifying Income?

Cabinet Decision No. 100 of 2023 creates four principal routes, subject to exclusions and special rules:

• income from transactions with a Free Zone Person, except income from Excluded Activities;
• income from transactions with a Non-Free Zone Person, but only from Qualifying Activities that are not Excluded Activities;
• qualifying income from ownership or exploitation of Qualifying Intellectual Property; and
• other income that remains within the de-minimis limit.

Even the first route is not a simple “free zone to free zone” test. The other Free Zone Person must be the beneficial recipient of the goods or services. Income attributable to domestic or foreign permanent establishments, immovable property and intellectual property follows additional rules.

Which activities currently qualify?

The applicable list is in Ministerial Decision No. 229 of 2025. It replaced and repealed Ministerial Decision No. 265 of 2023.

That change matters because older guides and commercial articles may still reproduce the 2023 list. Decision 229 retained a defined set of activities and revised parts of the framework, including qualifying-commodity trading and treasury/financing services. The legal classification should be made against the current decision and the actual functions performed, not a label copied from a licence.

Examples of categories in the current framework include manufacturing and processing, qualifying-commodity trading, investment holding, ship operations, specified regulated fund/wealth services, headquarters services, treasury and financing, aircraft finance/leasing, designated-zone distribution, logistics and qualifying ancillary activities. Each category has definitions and boundaries.

What is an Excluded Activity?

Income from an Excluded Activity is not eligible for the 0% free-zone rate merely because the counterparty is in another free zone. Under Decision 229, excluded categories include, subject to stated exceptions:

• transactions with natural persons;
• banking;
• insurance other than specified permitted categories;
• finance and leasing outside the permitted categories;
• ownership or exploitation of immovable property outside the specified commercial-property route; and
• ancillary activities connected with an Excluded Activity.

This is a summary, not the complete statutory text. For mixed businesses, each income stream and function must be classified separately.

How does the de-minimis test work?

The de-minimis requirement allows a limited amount of non-qualifying revenue without automatically destroying QFZP status. The ceiling is the lower of:

• 5% of total revenue for the tax period; or
• AED 5 million.

The calculation is not simply “5% of accounting turnover”. Cabinet Decision 100 excludes specified revenue categories from total and non-qualifying revenue for this test, including certain permanent-establishment, immovable-property and intellectual-property revenue. The inputs must be segregated before the percentage is applied.

Passing de minimis does not turn the non-qualifying income into a commercial free pass. It preserves status subject to the rest of the regime; the tax treatment and allocation still have to be calculated under the applicable rules.

What happens if a company fails a QFZP condition?

The consequence can reach beyond one transaction. A failure can remove QFZP status from the beginning of that tax period and, under the free-zone rules, prevent QFZP treatment for the following four tax periods. In practical terms, a breach can create a minimum five-tax-period consequence.

That makes periodic testing essential. A company can change its result by adding a new customer type, opening a mainland branch, moving functions, exceeding de minimis, entering an excluded activity, failing an audit requirement or changing related-party arrangements.

Does selling to mainland customers destroy the 0% rate?

Not automatically. The correct answer depends on what is sold, to whom, where the functions are performed and whether the transaction falls within a Qualifying Activity, an Excluded Activity, a permanent establishment or de minimis.

For a Non-Free Zone Person counterparty, income generally needs to arise from a Qualifying Activity that is not excluded. A mainland permanent establishment is analysed separately, and profits attributable to it are generally subject to 9%.

So “mainland customer” is a risk flag, not a complete tax conclusion.

Substance, transfer pricing and audited accounts

The QFZP regime is not a licence-only benefit. The company must maintain adequate substance relative to its activities. Related-party and connected-person dealings must follow the arm's-length principle; the FTA confirms that transfer-pricing rules apply to domestic as well as cross-border relationships.

A QFZP must also maintain audited financial statements and enough records to support the separation and calculation of Qualifying Income, other income, permanent-establishment attribution and related-party pricing.

Free-zone persons still register for corporate tax and file returns. The general filing/payment deadline is nine months after the end of the tax period, and relevant records are generally retained for seven years. Exact registration and filing dates must be checked for the entity.

What about the UAE Domestic Minimum Top-up Tax?

For most owner-managed businesses, the ordinary corporate-tax/QFZP analysis is the relevant one. Large multinational groups have an additional layer.

The UAE Ministry of Finance states that the Domestic Minimum Top-up Tax applies to constituent entities of multinational groups with annual consolidated revenue of at least EUR 750 million in at least two of the four preceding financial years. It applies for financial years starting on or after 1 January 2025 and is designed around a 15% minimum effective tax rate.

The guidance itself changed recently: Ministerial Decision No. 96 of 2026 repealed Decision 88 of 2025 and adopted updated commentary. An in-scope group should therefore run a separate Pillar Two workstream rather than rely on a small-business free-zone summary.

A practical decision map

1. Identify the taxable person and regime. Mainland, free zone, branch, tax group, exempt person or large-MNE constituent entity.
2. Map every material revenue stream. Product/service, counterparty, beneficial recipient, contract and delivery location.
3. Classify the activity under current law. Use Decision 229/2025, not the repealed 2023 list.
4. Separate special buckets. Permanent establishments, immovable property and intellectual property.
5. Test substance and transfer pricing. People, assets, expenditure, decision-making and related-party terms.
6. Calculate de minimis correctly. Apply the statutory exclusions before comparing 5% and AED 5 million.
7. Check compliance gates. Election, audit, documentation, registration, return and record retention.
8. Model change. Test what happens if customers, functions, premises or activities change next year.

The output should be a revenue-by-revenue tax map, not a single statement that “the company is tax-free”.