Where it goes wrong
You hear "0% in the free zone" and assume a free zone licence fully exempts you. That's not true. Set up your structure wrong, earn revenue from the local market, or lack substance, and you fall back to 9%. Or worse: you forget to register with the Federal Tax Authority and run into penalties.
Corporate tax in the UAE is low. But it's not a zero regime you can ignore.
The three rates
| Situation | Rate |
|---|---|
| Taxable profit up to AED 375,000 | 0% |
| Taxable profit above AED 375,000 (mainland) | 9% |
| Qualifying income of a Qualifying Free Zone Person | 0% |
| Non-qualifying income of a free zone company | 9% |
| Large multinationals (Pillar Two, revenue > EUR 750 million) | 15% (top-up) |
0% isn't only for free zones
The first AED 375,000 of profit is 0%, for every company. Even an ordinary mainland business starts at 0% and only pays 9% on profit above that. A free zone isn't a condition for 0%, but an extra route: for qualifying income, profit above AED 375,000 also stays at 0%. Mainland isn't automatically more expensive. The difference lies in your income and your structure, not the label.
When does 0% apply in a free zone?
A free zone company only pays 0% if it's a Qualifying Free Zone Person. That requires meeting a set of conditions:
- Sufficient real presence (substance): office, people, decisions in the UAE.
- Your income is qualifying income (certain activities and transactions).
- You don't do disqualifying business with the local mainland market.
- You comply with transfer pricing rules and your documentation is in order.
Fail to meet these, and the status lapses. You pay 9% on your taxable profit.
What many entrepreneurs forget
- Registration is mandatory. Even at 0%, you must register with the Federal Tax Authority and file a return.
- 0% personal is different from 0% for the business. The UAE levies no income tax on your personal income, but your company still falls under corporate tax.
- Your home country watches too. If effective management stays in the Netherlands or Belgium, the low UAE rate isn't granted to you yet.
Frequently asked questions
Does every company in the UAE pay 9%?
No. The first AED 375,000 of profit is taxed at 0%. Above that, 9%. A qualifying free zone company pays 0% on its qualifying income.
What is a Qualifying Free Zone Person?
A free zone entity that meets the substance, activity and documentation requirements and therefore pays 0% on qualifying income. Fail to meet them, and you fall back to 9%.
Do I need to file a return at 0%?
Yes. Registration with the Federal Tax Authority and filing a return are mandatory even at 0%.
Does 0% still apply if I live in Dubai but my clients are in the Netherlands?
Not automatically. It comes down to where effective management sits and whether you meet the free zone conditions. A sound structure and real substance determine whether you can apply the rate.
Indicative rates and rules, dependent on your situation. Have your position checked in advance.
