A UAE free zone company calculates corporate tax the same way as any other business — accounting profit, adjustments, then the rate — but the rate itself depends on one election: Qualifying Free Zone Person (QFZP) status. A free zone company that meets the QFZP conditions pays 0% on its qualifying income; one that fails the conditions pays the standard 9% on taxable income above AED 375,000. This guide walks the calculation step by step as the rules stand in September 2026.
The calculation in five steps
The framework is Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses, with the rates confirmed on u.ae.
| Step | What you do |
|---|---|
| 1. Start with accounting income | Take the net profit (or loss) from your financial statements for the tax period |
| 2. Split qualifying vs non-qualifying revenue | Test every revenue stream against the qualifying activities and de minimis rules below |
| 3. Apply adjustments | Add back non-deductible expenses, apply reliefs and losses as the Corporate Tax Law allows |
| 4. Apply the rate | 0% on qualifying income for a QFZP; standard rates (0% up to AED 375,000, 9% above) on the rest |
| 5. File and pay | Return and payment due within 9 months of the end of the tax period, via EmaraTax |
Late filing or late payment of corporate tax draws an administrative penalty of AED 500 per month (or part month) for the first 12 months, rising to AED 1,000 per month from the 13th month (FTA, 14 September 2025).
Small businesses: check Small Business Relief first
If your revenue did not exceed AED 3 million in the tax period and all previous periods, you can elect for Small Business Relief in your return and be treated as having no taxable income — available for tax periods ending on or before 31 December 2029. Once a return is filed without the election, it cannot be claimed later, and one period over AED 3 million ends eligibility permanently (Ministerial Decision No. 73 of 2023; FTA Small Business Relief Guide).
The QFZP conditions — and the one that catches companies out
A free zone person pays 0% on qualifying income only if it meets all of the following (FTA Free Zone Persons guide; Ministerial Decision No. 265 of 2023):
- Maintains adequate substance in a free zone.
- Derives qualifying income (as defined in Cabinet Decision No. 100 of 2023, as amended).
- Has not elected to be subject to the standard corporate tax rate.
- Complies with the arm's length principle and maintains transfer pricing documentation.
- Prepares and maintains audited financial statements — regardless of revenue size.
- Meets the de minimis test: non-qualifying revenue does not exceed the lower of AED 5 million or 5% of total revenue.
The catch: fail any condition and the person ceases to be a QFZP from the beginning of that tax period and for the four subsequent tax periods — so a single over-threshold year costs the 0% rate for five years.
Worked example (illustrative)
A free zone trading company has total revenue of AED 10,000,000 and accounting profit of AED 2,000,000. Non-qualifying revenue is AED 500,000 — exactly 5% of total revenue, so the de minimis test is still met. As a QFZP, the AED 9,500,000 of qualifying income is taxed at 0%. The non-qualifying income's share of taxable income is taxed at standard rates: the first AED 375,000 at 0%, the remainder at 9%.
| Item | Amount (AED) |
|---|---|
| Qualifying income — taxed at 0% | 9,500,000 → 0 |
| Non-qualifying income: first AED 375,000 at 0% | 0 |
| Non-qualifying income above AED 375,000 at 9% | 11,250 |
| Corporate tax payable (illustrative) | 11,250 |
This example simplifies the apportionment of profit between qualifying and non-qualifying streams; the precise computation follows the Corporate Tax Law and its decisions, and companies with mixed revenue should have the split reviewed before filing. If the same company's non-qualifying revenue had been AED 500,001 — over the de minimis ceiling in this scenario — QFZP status would be lost and the entire taxable income would move to the standard rates.
What to have ready before you calculate
- An audited set of financial statements for the period (mandatory for QFZPs).
- A revenue-by-stream breakdown mapping each stream to qualifying activities or excluded activities.
- Transfer pricing documentation for related-party dealings.
- Your election decision: Small Business Relief or QFZP treatment, made inside the tax return — it cannot be added after filing.
If the split between qualifying and non-qualifying income is eating your quarter, Finanshels' corporate tax filing service prepares the computation and the election, and tax consultation reviews QFZP eligibility before you commit to it in a return. Still to register? Start with corporate tax registration in the UAE.
Related free zone tax terms
A few terms recur across free zone tax calculations: qualifying activities are the specific income streams listed in Ministerial Decision No. 265 of 2023 that can benefit from the 0% rate; excluded activities never qualify regardless of substance or de minimis compliance; economic substance means real staff, assets and decision-making in the free zone, not a registered address alone; and designated zones are a separate, narrower VAT concept that should not be confused with QFZP status for corporate tax purposes.
FAQs
Do all free zone companies get 0% corporate tax?
No — only income that meets the Qualifying Free Zone Person conditions and counts as qualifying income is taxed at 0%. Non-qualifying income above the de minimis limit is taxed at standard rates, and failing any QFZP condition moves all income to standard rates.
What is the de minimis limit for a Qualifying Free Zone Person?
Non-qualifying revenue must not exceed the lower of AED 5 million or 5% of total revenue in the tax period. Exceeding it removes QFZP status for that period and the four following periods.
Do free zone companies need an audit for corporate tax?
Yes — a Qualifying Free Zone Person must prepare audited financial statements regardless of revenue size, unlike mainland companies where audit requirements depend on revenue or free zone rules.
Last reviewed: September 2026 by Gautam Sanoj, Associate Manager – Tax Advisory, Finanshels. Rules as of Federal Decree-Law No. 47 of 2022 and its Ministerial and Cabinet Decisions; verify current thresholds against the FTA (tax.gov.ae) before acting.
