The introduction of UAE Corporate Tax changed how free zone companies should describe their tax position. The older marketing language of a permanently tax-free jurisdiction no longer reflects the framework, and relying on it can lead to unpleasant surprises at the first filing.
The basic framework
UAE Corporate Tax applies to businesses across the UAE, including those registered in free zones. The headline rate applied to taxable income above the applicable threshold is 9%.
Free zone companies are not exempt by default. Instead, a company that meets the conditions to be treated as a Qualifying Free Zone Person may benefit from a 0% rate on its Qualifying Income, while other income can be subject to the standard treatment.
Qualifying Free Zone Person status is conditional
The status is not automatic and it is not granted simply by holding a free zone licence. It depends on conditions relating to substance in the UAE, the nature of the income earned, transfer pricing documentation and the maintenance of proper accounting records.
The practical consequence is that two companies in the same free zone can have different tax outcomes, because the outcome follows the facts of the business rather than the address on the licence.
Registration and filing obligations
Corporate Tax registration is an obligation in its own right, separate from whether tax is ultimately payable. Companies also need to file returns for each tax period and keep accounting records that support the positions taken.
Alongside Corporate Tax, most companies carry Ultimate Beneficial Owner declaration obligations and, where turnover thresholds are met, VAT registration and periodic VAT filing.
What to do about it
Treat tax as part of the structuring decision rather than an afterthought. Before incorporation, look at where your income will come from, who your customers are, and whether the intended activity is likely to sit within qualifying income.
This article is general information, not tax advice. Your position depends on your specific facts and on the rules in force at the time. We work through those facts with you as part of the setup process, and refer specialist opinions where a position is genuinely uncertain.