UAE Corporate Tax 9%: what free zone entities actually need to know in 2026

The UAE Federal Decree-Law No. 47 of 2022 introduced a 9% federal corporate tax on taxable profits above AED 375,000, effective from financial years starting on or after 1 June 2023. Two years in, we still see founders arriving in Dubai with the belief that free zone companies pay no tax at all. That statement is a simplification. Here is what the framework actually says.

1. The 0% rate is a status, not a default

A free zone entity does not get 0% automatically. It gets 0% on 'qualifying income' if it obtains the status of 'Qualifying Free Zone Person' (QFZP). That status has to be maintained every financial year and requires adequate substance, audited accounts, transfer pricing documentation and de minimis limits on non-qualifying revenue.

2. Substance requirements

The Cabinet Decision defines 'adequate substance' with reference to three elements: (i) the core income-generating activities of the entity are actually carried out from the free zone; (ii) the entity has adequate assets, qualified full-time employees and operating expenditures relative to the level of activity; (iii) outsourcing is allowed but must be to another entity within the free zone and remains under the QFZP's supervision. A shell company with a Flexi Desk and no employees does not meet the substance test.

3. Qualifying vs non-qualifying income

Not all income earned by a free zone entity is 'qualifying'. Qualifying income includes, broadly: income from transactions with other free zone persons (subject to conditions), income from qualifying activities, income from ownership of qualifying intangibles under strict conditions. Non-qualifying income includes income from transactions with UAE mainland persons that fall outside the exceptions, income from immovable property outside the free zone, and other categories listed by the Ministry of Finance. Non-qualifying income is taxed at 9%.

4. The de minimis threshold

A QFZP can earn a limited amount of non-qualifying revenue without losing its status: the lower of 5% of total revenue or AED 5,000,000. Above that threshold, the entity loses QFZP status for the entire tax period and the following four — a severe consequence. This is why revenue mix planning is not an afterthought but a strategic decision from day one.

5. Transfer pricing

Free zone entities are within the scope of the OECD-aligned transfer pricing rules. Related-party transactions must be at arm's length and require documentation (Master File, Local File, disclosure form) above given thresholds. Founders who move IP, brand or management services between UAE and their home country entities without proper transfer pricing analysis are creating exposure to a 9% assessment plus penalties.

6. Audited accounts are non-optional

Qualifying Free Zone Persons must maintain audited financial statements. This is a hard requirement, not a nice-to-have. Choosing an auditor early — before the first year end — is one of the least glamorous but most impactful decisions in the setup phase.

7. Where founders lose money

• Assuming that any income booked through a DMCC entity is exempt.
• Not tracking non-qualifying revenue and blowing through the de minimis threshold.
• Failing transfer pricing on management fees and IP royalties paid to/from EU entities.
• Postponing the appointment of the auditor and rushing it at year end.

The APH24 view

APH24 International Consultancy DMCC does not act as a tax advisor and does not sign tax returns — that is the domain of chartered tax professionals we introduce and coordinate. Our contribution sits earlier: designing the corporate architecture and the revenue-flow map so that qualifying income and substance are baked into the business model from day one, rather than reverse-engineered under audit pressure.