The United Arab Emirates (UAE) has always been one of the most attractive destinations for entrepreneurs and investors because of its tax-friendly policies, world-class infrastructure, and global connectivity. With the introduction of the UAE Corporate Tax regime in June 2023, many businesses were concerned about its impact. However, the government has ensured that Qualifying Free Zone Persons (QFZPs) can still enjoy 0% corporate tax on eligible income, making the UAE a competitive hub for international business.
What is a Qualifying Free Zone Person (QFZP)?
A Qualifying Free Zone Person refers to a company or entity established in a UAE Free Zone that meets specific conditions set by the Ministry of Finance to benefit from the 0% corporate tax rate.
To qualify, the Free Zone company must:
- Maintain adequate substance in the UAE (e.g., real office, active operations).
- Earn qualifying income as defined under the law.
- Comply with transfer pricing regulations.
- Not elect to be subject to the regular 9% corporate tax rate.
- Meet all reporting and compliance requirements.
What Income is Taxed at 0%?The UAE government has outlined the types of income that can benefit from the 0% corporate tax rate for Free Zone businesses. This includes:
- Income from transactions with businesses located outside the UAE.
- Income from transactions with businesses located in the same Free Zone.
- Certain income from qualifying activities (such as trading, manufacturing, and specific services).
- Income from headquarters, distribution, and service center activities that meet the qualifying criteria.
However, income earned from transactions with mainland UAE companies may be subject to the 9% standard corporate tax rate, unless they qualify under special exemptions.
Key Benefits of 0% Corporate Tax for Free Zone Companies
Tax Savings – Eligible companies enjoy 0% corporate tax on qualifying income.
- Global Competitiveness – Makes UAE Free Zones highly attractive for international investors and startups.
- Business Growth – Companies can reinvest profits without worrying about high tax burdens.
- Legal Certainty – Clear government guidelines ensure stability and predictability for long-term planning.
- Access to International Markets – Many Free Zones are strategically located near ports, airports, and logistics hubs.
Who Should Consider Setting Up in a Free Zone?
- Startups and entrepreneurs looking to minimize tax liability.
- E-commerce businesses serving international markets.
- Consulting firms working with clients outside the UAE.
- Trading companies importing/exporting goods via UAE ports.
- Tech and digital companies providing online services.
Compliance and Reporting
While the 0% tax rate is highly attractive, Free Zone companies must remain compliant by:
- Filing annual corporate tax returns.
- Maintaining proper accounting records.
- Ensuring all activities meet the “qualifying income” criteria.
Failure to comply may lead to disqualification from the 0% rate and exposure to the standard 9% tax.
Final Thoughts
The introduction of corporate tax in the UAE has raised questions among investors, but the government’s policy for Qualifying Free Zone Persons reaffirms its commitment to being a global business hub. By maintaining 0% corporate tax on eligible income, Free Zones remain one of the best choices for entrepreneurs, startups, and international companies looking to establish a presence in the Middle East.
For businesses, the key is to structure operations correctly and ensure compliance with the Free Zone and Ministry of Finance requirements. With the right guidance, you can continue to enjoy tax-free benefits while scaling your business in one of the world’s fastest-growing economies.