UAE Corporate Tax: Know the New Exemption Rules for Companies in Free Zones

The United Arab Emirates ( UAE ) Federal Tax Authority ( FTA ) has released details on how free zone businesses can qualify for a zero percent corporate tax rate on certain activities. This comes after a new law introduced a 9% tax on companies making over 375,000 dirhams, with exceptions for free zones.

Qualifying for the Tax Exemption

To get the 0% rate, your company must be a Qualifying Free Zone Person (QFZP). This means –

• Having audited financial statements,
• Demonstrating real business activity in the free zone (economic substance),
• Earning income from approved activities and there is also a limit on non-approved income. If it is more than 5 million dirhams or 5% of your total income, you might lose the tax break for everything.

What Activities Qualify?

• The FTA clarified several activities that qualify for the tax break:
• High seas sales and export sales billed domestically qualify for the 0% rate.
• Cryptocurrency investments are considered under qualifying income rules.
• Interest income from extra funds does not qualify.
• Free zone holding companies without staff can meet the substance test with board decisions.
• Commodity trading does not require exchange listing, benefiting sectors like oil and gold.
• Processing goods (including more than just manufacturing) is a qualifying activity.
• Distributing goods from other countries (third-country trading) can get tax benefits without physically importing them to the UAE.
• Investing excess cash for personal use counts as qualifying activity.
• Separate financial statements for qualifying and non-qualifying income aren’t required.

The FTA has recently changed deadlines for companies to register for corporate tax. Most businesses need to register much sooner than originally planned.

Instead of September 2025, the new deadlines are spread throughout 2024. The first group needs to register by May 31st, and all companies must be registered by December 31st.

The FTA groups businesses based on the month their licence was issued, not the year.

In light of the new rules, the Free zone businesses in the UAE should carefully review the FTA guidelines to comply with the new rules and benefit from the 0% tax rate on qualifying activities.

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