A free zone company does not pay 0% automatically. Only a Qualifying Free Zone Person (QFZP) pays 0% on qualifying income; everything else is taxed at 9%. Miss one condition and the company loses QFZP status for the year and the next four — so the details matter.
The conditions
- Maintain adequate substance in the free zone: assets, qualified staff and expenses in line with the activity.
- Earn qualifying income — from qualifying activities and transactions with other free zone persons or eligible foreign parties.
- Keep non-qualifying revenue under the de minimis limit: 5% of total revenue or AED 5 million, whichever is lower.
- Apply arm’s length pricing and keep transfer pricing documentation.
- Prepare audited financial statements.
- Not elect to be taxed at the standard rate.
Where companies go wrong
Sales to mainland customers that are not qualifying, management fees from related parties without documentation, missing audited accounts, or a single large contract that breaks the de minimis limit. We test your income every quarter in your forecast, so you know where you stand long before the year end.
Choosing the right set-up
Not every business belongs in a free zone. If most of your customers are on the mainland, a mainland company or a combination may be better. Compare live set-up prices of every free zone and mainland option on our homepage calculator, then talk to us before you decide.
Frequently asked questions
Is every free zone company taxed at 0%?
No. Only a Qualifying Free Zone Person pays 0%, and only on qualifying income. Other income is taxed at 9%, and failing a condition can remove the 0% rate for five years.
Can a free zone company sell to mainland customers?
It can, within its licence, but most sales of services to mainland businesses are not qualifying income and count towards the de minimis limit. We review your customer mix before it becomes a problem.
What does “adequate substance” mean?
Enough people, premises, assets and expenses in the free zone to carry out the activities that generate the income. A virtual office alone may not be enough for some activities.
Can Small Business Relief be used by a free zone company?
No. Qualifying Free Zone Persons cannot elect Small Business Relief.
This guide reflects UAE law and FTA guidance as at October 2026. It is general information, not advice for your specific situation — rules and thresholds change, so speak to an SJPR advisor before acting.
