Do free zone companies pay UAE corporate tax?

Free zone companies that qualify as Qualifying Free Zone Persons (QFZPs) pay 0% on qualifying income and 9% on non-qualifying income. To maintain QFZP status, non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of total revenue in the tax period. Failing this test means the standard 9% rate applies to all taxable income for that period.

Who is exempt from UAE corporate tax?

Exemptions include UAE government entities, government-controlled entities listed by Cabinet Decision, extractive businesses under emirate-level decrees, qualifying public benefit entities, qualifying investment funds, and pension funds. Employment income, personal investment dividends received by individuals, and individual real estate gains outside a business are outside CT scope entirely.

What is the AED 375,000 corporate tax exemption?

AED 375,000 is not an exemption — it is a zero-rate band. Taxable income up to AED 375,000 is charged at 0%, and only income above that threshold is charged at 9%. You still need to register and file a CT return even if all your income falls within the 0% band.

What is Small Business Relief for UAE corporate tax?

Small Business Relief allows resident taxable persons with revenue of AED 3,000,000 or less to elect to be treated as having no taxable income for a tax period. It is available for tax periods ending on or before 31 December 2026. Free zone persons and members of large multinational groups subject to OECD Pillar Two rules cannot use it.

When must UAE corporate tax returns be filed?

CT returns must be filed electronically through the FTA's EmaraTax portal within nine months of the end of the relevant tax period. For example, a company with a 31 December year-end must file by 30 September of the following year. Records must be retained for seven years from the end of the tax period.

Do natural persons (sole traders) pay UAE corporate tax?

Natural persons are subject to UAE CT only if they conduct business or business activity with annual UAE-sourced turnover exceeding AED 1,000,000 in a calendar year. Employment income and personal investment returns are excluded from CT scope regardless of amount.

How does KARR help with UAE corporate tax compliance?

KARR automatically separates qualifying from non-qualifying income for free zone businesses, tracks the 5% non-qualifying revenue threshold in real time, and generates a running CT liability estimate applying the 0% band and 9% rate to the correct income portions. It also automates VAT Form 201 preparation, produces FTA-compatible financial statements, and uses AI receipt OCR to classify transactions from point of entry.

UAE Corporate Tax 9%: Who Pays, the AED 375,000 Exemption, and Free Zone Rules Explained

Q: What is the UAE corporate tax rate?

The UAE corporate tax rate is 9% on taxable income above AED 375,000. Taxable income at or below AED 375,000 is taxed at 0%. The regime applies to financial years beginning on or after 1 June 2023 under Federal Decree-Law No. 47 of 2022.

TL;DR: UAE corporate tax is 9% on taxable income exceeding AED 375,000 per financial year. Income below that threshold is taxed at 0%. Qualifying Free Zone Persons (QFZPs) can access a 0% rate on qualifying income indefinitely, provided they meet strict substance and income tests set by the Federal Tax Authority.

Last updated: August 2026

What Is the UAE Corporate Tax Rate and When Did It Start?

The UAE corporate tax (CT) rate is 9% on taxable income above AED 375,000. The regime came into force for financial years beginning on or after 1 June 2023 under Federal Decree-Law No. 47 of 2022. Income at or below AED 375,000 is taxed at 0% — a built-in small-business relief that requires no separate application.

Before June 2023, the UAE had no federal corporate income tax on most businesses (oil companies and foreign bank branches operated under emirate-level taxes). The new CT regime changed that for the vast majority of juridical and natural persons conducting business in the UAE.

The Two-Tier Rate Structure

Taxable Income Band	CT Rate
AED 0 – AED 375,000	0%
Above AED 375,000	9%

The 9% applies only to the portion above AED 375,000 — not to the full taxable income. If your taxable income is AED 500,000, only AED 125,000 is taxed at 9%, giving a CT liability of AED 11,250 for that year.

Who Must Register for UAE Corporate Tax?

Every juridical person incorporated in the UAE — including mainland LLCs, free zone companies, and foreign entities with a permanent establishment in the UAE — must register for corporate tax with the Federal Tax Authority (FTA). Registration is mandatory regardless of whether you ultimately owe tax. Natural persons (sole proprietors and individuals) who conduct business or business activity with annual turnover exceeding AED 1,000,000 are also within scope.

Who Is Subject to UAE CT?

UAE-incorporated companies (mainland and free zone)
Foreign companies effectively managed and controlled from the UAE
Permanent establishments of foreign companies in the UAE
Natural persons with UAE-sourced business income above AED 1,000,000 per calendar year

Who Is Exempt?

UAE and emirate-level government entities
Government-controlled entities specified by Cabinet Decision
Extractive businesses (subject to emirate-level tax decrees)
Non-extractive natural resource businesses meeting specific conditions
Qualifying Public Benefit Entities listed by Cabinet Decision
Qualifying Investment Funds meeting FTA conditions
Pension and social security funds

Salary, employment income, dividends received by individuals from personal investments, and real estate gains by individuals (not through a business) are outside the scope of CT.

How Does the AED 375,000 Exemption Work?

The AED 375,000 threshold is a zero-rate band, not a filing exemption. Taxable income at or below AED 375,000 is charged at 0%. You still register, still file a CT return, and still maintain the required financial records — you simply pay no tax on that first slice of income.

This design means there is no cliff-edge effect: earning AED 376,000 does not trigger tax on the entire amount, only on the AED 1,000 above the threshold.

Small Business Relief

Separate from the 0% band, the FTA introduced Small Business Relief under Ministerial Decision No. 73 of 2023. Resident taxable persons with revenue of AED 3,000,000 or less in a tax period (and in all prior periods since 1 June 2023) may elect to be treated as having no taxable income for that period. This relief is available for tax periods ending on or before 31 December 2026. It cannot be used by free zone persons or members of a multinational group subject to OECD Pillar Two rules.

What Are Qualifying Free Zone Persons (QFZPs) and How Does the 0% Rate Work?

A Qualifying Free Zone Person pays 0% CT on qualifying income and 9% on non-qualifying income. This is not a blanket exemption for operating from a free zone — it is a specific status that must be maintained every tax period by satisfying a multi-part test set out in the CT law and FTA decisions.

The Four QFZP Conditions

Substance in a free zone — the entity must be incorporated or registered in a UAE free zone and maintain adequate substance there (genuine activities, appropriate staff and assets).
Qualifying income — income must come from Qualifying Activities or from transactions with other free zone persons, as defined in Ministerial Decision No. 265 of 2023.
Non-qualifying revenue threshold — non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of total revenue in the tax period. Exceeding this threshold strips QFZP status for that entire period.
Arm's-length and transfer pricing — transactions with related parties must comply with arm's-length principles and transfer pricing documentation requirements.

Qualifying Activities (Selected Examples)

Manufacturing of goods or materials
Processing of goods or materials
Holding of shares and other securities (for own account)
Ownership, management, and operation of ships
Reinsurance services regulated by competent authorities
Fund management services regulated by competent authorities
Headquarters services to related parties
Treasury and financing services to related parties
Financing and leasing of aircraft
Distribution of goods or materials in or from a Designated Zone
Logistics services in or from a Designated Zone
Ancillary activities directly connected to the above

QFZP Income Split: A Practical Example

Income Stream	Amount (AED)	QFZP Classification	CT Rate
Revenue from qualifying manufacturing	2,000,000	Qualifying income	0%
Revenue from UAE mainland customers (non-qualifying)	150,000	Non-qualifying income	9%
Total revenue	2,150,000	—	—
Non-qualifying % of total	~7%	Exceeds 5% threshold	Entire period taxed at standard rates

In this example, because non-qualifying revenue is approximately 7% of total revenue — above the 5% cap — the entity loses QFZP status for the entire tax period. Careful income monitoring is therefore critical.

How Does UAE Corporate Tax Compare Across the GCC?

The UAE's 9% CT rate is the lowest headline corporate income tax rate among GCC states that have implemented a corporate tax. The table below uses only verified figures from this publication's source of truth.

Country	Corporate Tax Rate	VAT Rate	Notes
UAE	9% on income above AED 375,000	5%	0% for QFZPs on qualifying income
Saudi Arabia	20% on foreign-owned profit share + 2.5% Zakat on Saudi/GCC share	15%	VAT rose from 5% to 15% on 1 July 2020
Bahrain	0% generally; 15% top-up for large MNE groups (from 2025)	10%	VAT rose from 5% to 10% on 1 January 2022
Oman	15%	5%	—
Qatar	10% on foreign-owned profit share	No VAT in force	Filed via Dhareeba portal
Kuwait	15% on foreign (non-GCC) companies' Kuwait-source income	No VAT in force	—

What Records and Returns Are Required?

All UAE CT registrants must file an annual CT return with the FTA. The return is due nine months after the end of the relevant tax period. For a company with a financial year ending 31 December 2023, the first return was due by 30 September 2024.

Key Compliance Requirements

CT registration — mandatory for all taxable persons, typically before the first tax period deadline
Annual CT return — filed electronically through EmaraTax
Financial statements — taxable persons with revenue above AED 50,000,000, or those electing Small Business Relief, must prepare audited financial statements
Transfer pricing documentation — master file and local file required for taxable persons with consolidated group revenue of AED 3,150,000,000 or more; disclosure form for all related-party transactions above specified thresholds
Record retention — seven years from the end of the relevant tax period

How KARR Helps UAE Businesses Manage Corporate Tax

KARR is cloud accounting software built for the UAE market. For corporate tax specifically, KARR separates qualifying income from non-qualifying income in real time — so free zone businesses can see whether they are approaching the 5% non-qualifying revenue threshold before it becomes a QFZP compliance breach.

What KARR does for UAE CT compliance:

QFZP income classification — transactions are tagged as qualifying or non-qualifying, and KARR calculates the non-qualifying revenue percentage automatically against the 5% / AED 5,000,000 cap.
CT liability estimation — the dashboard shows a running estimate of CT payable based on actual income recorded, applying the 0% band and 9% rate to the correct portions.
VAT Form 201 filing — KARR automates quarterly VAT return preparation and submission to the FTA, keeping VAT and CT records aligned.
Audit-ready financial statements — P&L, Balance Sheet, and Cash Flow reports are generated in FTA-compatible formats, reducing the audit preparation burden.
Bank feed auto-categorization — AI-powered categorization reduces manual entry and ensures income streams are correctly classified from point of entry.
Receipt OCR — scan invoices and receipts; KARR extracts line-item data and maps it to the correct CT and VAT treatment.
Multi-currency support — for free zone entities trading internationally, KARR converts foreign-currency transactions and maintains AED-denominated records as required by FTA.

KARR's "What Happened?" guided wizard is designed for business owners who are not accountants — you describe a transaction in plain language and KARR maps it to the correct accounting and tax treatment.

Pricing: Free ($0), Pro ($12/month), Business ($29/month). Free zone businesses monitoring QFZP status will typically find the Business plan most suitable for its multi-entity and advanced reporting features.

For CAs and tax agents managing multiple UAE clients, KARR's practice dashboard enables batch CT estimates and client-level income classification reviews from a single login.

Key Deadlines and Thresholds at a Glance

Item	Figure / Date
CT regime effective from	Financial years beginning on or after 1 June 2023
Standard CT rate	9% on taxable income above AED 375,000
Zero-rate band	AED 0 – AED 375,000
QFZP rate on qualifying income	0%
QFZP non-qualifying revenue cap	Lower of AED 5,000,000 or 5% of total revenue
Small Business Relief revenue cap	AED 3,000,000
Small Business Relief available until	Tax periods ending on or before 31 December 2026
Natural person CT threshold	AED 1,000,000 annual business turnover
CT return due date	9 months after end of tax period
Record retention period	7 years
Audited financials required above	AED 50,000,000 revenue