Are You a 'Free Zone Person' for UAE Corporate Tax? A Comprehensive Guide to Eligibility
Confused about whether you qualify as a Free Zone Person under UAE Corporate Tax? Discover who qualifies, who doesn’t, and how to secure the 0% tax rate with this comprehensive eligibility guide for Free Zone businesses.
As the UAE Corporate Tax regime continues to roll out, one of the most critical questions for Free Zone businesses is:Do you qualify as a Free Zone Person (FZP)?
Why does this matter? Because your eligibility could determine whether your business benefits from the0% Corporate Tax rateor gets taxed at the standard 9%. And contrary to popular belief,simply being registered in a Free Zone isnt enough.
In this guide, well break down what it truly means to be a Free Zone Person, who qualifies, who doesnt, and what practical steps your business should take today.
? What Is a 'Free Zone Person'?
According to the UAEs Federal Tax Authority (FTA), aFree Zone Personis ajuridical entity (i.e., a legal company or branch)that is incorporated or registered in a UAE Free Zone.
?Important: A natural person (individual or freelancer) does not qualify as a Free Zone Person.
? Eligible Free Zone Persons include:
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Free Zone Limited Liability Companies (FZ-LLC)
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Branches of UAE Mainland companies operating in Free Zones
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Branches of foreign companies registered in Free Zones
These entities must belegally recognizedandregistered with the Free Zone authority, not just operating from a Free Zone office.
? Who QualifiesAnd Who Doesnt?
Heres a quick overview:
| Entity Type | Qualifies as FZP? | Notes |
|---|---|---|
| Free Zone LLC (FZ-LLC) | ? Yes | Must meet other qualifying conditions |
| Branch of UAE company | ? Yes | Must be registered and operating in a Free Zone |
| Branch of foreign company | ? Yes | Same rules as above |
| Natural Person (Freelancer) | ? No | Not considered a juridical person |
| Sole Establishment | ? No | Unless converted into a company structure |
| Virtual business license holders | ? No | If not meeting physical and legal entity requirements |
? What Is a Qualifying Free Zone Person (QFZP)?
Simply being a Free Zone Persondoesnt automatically qualify you for the 0%UAE Corporate Taxrate. For that, you must meetallof the following conditions under Article 18 of the Corporate Tax Law:
? Conditions to be a Qualifying Free Zone Person:
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Maintain Adequate Substancein the UAE (office, employees, activities)
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Derive Qualifying Income(e.g., goods/services to businesses outside UAE or in Free Zones)
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Not Elect to Be Subject to Normal CT Rates
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Comply with Transfer Pricing Rules
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Have Audited Financial Statements
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Meet the De-Minimis Rule: Non-qualifying income must not exceed AED 5 million or 5% of total revenue (whichever is lower)
?Failing to meet even one of these conditions means you lose the 0% tax benefit forfive years.
? Why Your Classification Matters
If your business is a Qualifying Free Zone Person:
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You pay0% Corporate TaxonQualifying Income
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But you pay9%onNon-Qualifying Income(like UAE mainland sales)
If your businessfails to qualify:
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Youll pay9% on all taxable income, withno AED 375,000 relief threshold
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You could face penalties formisclassification or non-compliance
? Common Mistakes That Disqualify You
ManyUAE Free Zonebusinesses assume theyre eligible just by location. But here arefour pitfallsthat can disqualify your tax status:
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No real operations/substancein the Free Zone
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Serving individual customersin the UAE (retail = excluded activity)
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No audited financialssubmitted to the FTA
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Accidental electionfor normal CT rates in FTA portal
?? Compliance Steps to Take Today
To secure your 0% tax rate, take these steps now:
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Review your license type and business activities
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Confirm your income types(qualifying vs non-qualifying)
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Ensure audited financialsare prepared for your first tax year
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Track the de-minimis thresholdif you have non-qualifying income
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Seek expert advicebefore submitting your Corporate Tax registration
? Strategic Impact on Business Decisions
Understanding whether you are a Free Zone Person directly impacts:
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Where you should incorporate or restructure your entity
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Whether to sell to UAE mainland or abroad
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How to design your business model (B2B vs B2C)
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Whether to restructure as aholding companyor HQ function
This isnt just a tax issueits astrategic operational decision.
? Conclusion
In the UAEs evolving Corporate Tax landscape, determining whether you are aFree Zone Personis more than a technical formalityits the gateway to unlocking the0% tax rate. But the rules are precise, and the compliance expectations are strict.
Need help figuring out your status or optimizing your structure?
Let ourexpert'sCorporate Tax Servicesassess your situation and guide you to fullcompliance requirementsfor your business in UAE while preserving your 0% tax benefits.
?Book a Free Consultation Now
Schedule a session with our UAE Corporate Tax consultants to determine your eligibility and next steps.
?Book Now
? Call:+971 50 398 9000
