Corporate Tax Registration for Free Zone Companies in the UAE: Eligibility, Exemptions & Compliance Guide (2026)

Corporate Tax Registration for Free Zone Companies in the UAE: Eligibility, Exemptions & Compliance Guide (2026)

Introduction:

The United Arab Emirates (UAE) has rapidly evolved from a tax-free haven to a progressive corporate tax jurisdiction. In June 2023, the UAE introduced its first Federal Corporate Tax regime, significantly impacting businesses across the Mainland and Free Zones. Free zone companies — historically known for tax advantages — must now understand the new framework to maintain benefits and stay fully compliant.

This blog explains:

• What Corporate Tax means for Free Zone companies

• Eligibility requirements

• Exemptions and qualifying conditions

• Registration process

• Ongoing compliance

• Penalties & strategic planning

By the end, you’ll have a clear step-by-step understanding of how to register, maintain your tax status, and maximize benefits under UAE law.

What Is UAE Corporate Tax and Why It Matters for Free Zone Companies?

The UAE Corporate Tax (CT) regime imposes tax on business profits. The standard rate is 9% on taxable income above AED 375,000. However, the regime also created a special structure for Free Zone Persons — designed to preserve the competitive environment of Free Zones while introducing modern tax compliance.

Free Zone Tax Treatment Isn’t Automatic:

Contrary to earlier misconceptions, Free Zone companies are not inherently tax-free. They must:

• Register for Corporate Tax with the Federal Tax Authority (FTA)

• File annual tax returns even if no tax is due

• Meet qualifying conditions to enjoy a 0% rate on qualifying income.

Failure to comply may lead to fines, loss of benefits, or taxation at the standard 9% rate on global income.

Who Is Eligible: Free Zone Person vs. Qualifying Free Zone Person:

Understanding the difference between a Free Zone Person (FZP) and a Qualifying Free Zone Person (QFZP) is critical:

1) Free Zone Person (FZP)

A Free Zone Person is:

• A juridical entity (corporation, LLC, branch)

• Registered within a UAE Free Zone

• Recognized under local Free Zone authority rules

All FZPs must register and file corporate tax, regardless of expected tax liability.

2) Qualifying Free Zone Person (QFZP)

A QFZP is an FZP that meets specific eligibility criteria to claim a 0% corporate tax rate on qualifying income. These criteria are defined by the UAE Corporate Tax Law, Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025.

Eligibility Conditions for 0% Corporate Tax (Qualifying Free Zone Person):

To benefit from the 0% corporate tax rate, a QFZP must satisfy all of the following:

a) Substance Requirements:

The company must demonstrate genuine economic presence in the UAE:

• Physical office space

• Adequate qualified employees

• Relevant operating expenditure proportional to activity level

• Core income-generating activities performed within the Free Zone (outsourcing allowed only if controlled by the company).

b) Qualifying Activities:

Qualifying income generally includes business income derived from activities such as:

• Manufacturing and distribution

• Logistics services

• Holding functions

• Fund, wealth and investment management

• Reinsurance and financial services

• Headquarters and treasury functions

• Aircraft financing & leasing

• Other permitted activities under Ministerial rules.

Income from non-qualifying or excluded activities — such as general financing, residential real estate, or B2C sales — does not qualify for 0% and may be subject to 9% tax.

c) De Minimis Threshold

The company must ensure that non-qualifying income does not exceed:

• AED 5 million, or

• 5% of total revenue in the tax period.

If this threshold is breached, the company may lose its QFZP status for five years.

d) Audited Financial Statements & Transfer Pricing

To maintain eligibility:

• Prepare audited accounts (IFRS or accepted standards)

• Segregate qualifying vs non-qualifying income

• Apply arm’s-length transfer pricing on related-party transactions and maintain documentation.

Exemptions and Reliefs Explained:

a) 0% Tax on Qualifying Income

If all QFZP conditions are fulfilled, the company pays 0% on qualifying income — a powerful incentive to retain operations within the Free Zone.

b) Standard Corporate Tax Thresholds

Free Zone companies with non-qualifying income are taxed:

• At 0% on income up to AED 375,000

• At 9% on taxable profits above AED 375,000 — unless QFZP conditions apply.

c) Sector & Special Reliefs

The UAE Corporate Tax regime also includes exemptions for:

• Certain charities and government entities

• Businesses in natural resource sectors

• Small business relief (for companies with revenue ≤ AED 3 million until 2026) — but this generally applies more on the mainland regime.

Corporate Tax Registration Process (Step-by-Step):

Free Zone companies must register with the Federal Tax Authority (FTA) via the EmaraTax portal:

Step 1: Create an FTA Account

Set up your business profile in EmaraTax using your Free Zone license details and Emirates ID or passport.

Step 2: Complete the Corporate Tax Registration Form

Provide accurate information including:

• Trade license

• Legal entity details

• Ownership structure

• Financial year details

• Activity descriptions.

Step 3: Submit Supporting Documents

Typical documents include:

• Trade license and lease agreement

• Passport copies of shareholders

• Financial statements (existing or audited)

• Board resolution (if applicable).

Step 4: Receive Corporate Tax Registration Number (TRN)

Post verification, FTA issues a TRN — essential for filing tax returns and maintaining compliance.

Annual Filing & Compliance Requirements:

Registration is only the beginning. Key ongoing obligations include:

a) Annual Corporate Tax Return:

Every Free Zone company must file a Corporate Tax Return within 9 months after the end of its financial year — even if no tax is payable.

Example: If the financial year ends Dec 31, 2025, the filing deadline will be September 30, 2026.

b) Accounting & Audit:

• Maintain accurate financial records

• Carry out annual audit (for QFZP status)

• Segregate qualifying vs non-qualifying income.

c) Documents Retention:

Maintain tax records for at least seven years after the end of the relevant tax period.

d) Transfer Pricing Documentation:

If related-party transactions exceed thresholds, submit detailed transfer pricing reports.

e) Economic Substance Regulations (ESR):

Some activities require ESR compliance, including notifications and reports, separate from corporate tax requirements.

Common Mistakes Free Zone Companies Must Avoid:

To protect your 0% tax benefits and avoid penalties:

• Assuming free zone means tax-free — likely to trigger compliance issues.

• Failing to register with the FTA on time — incurs penalties.

• Missing annual filings — even if no tax is due.

• Poor bookkeeping or lack of audit reports.

• Non-compliance with transfer pricing & ESR rules.

Penalties for Non-Compliance:

Non-compliance can attract substantial penalties from the FTA:

• AED 10,000 for late registration.

• Fines for late filing or incorrect returns.

• Monthly penalties for delayed submission.

• Retroactive loss of 0% status — all profits taxed at 9% + potential further penalties.

Strategic Planning for Free Zone Success:

To maximise benefits:

1) Plan Your Activities

Choose business activities that qualify for 0% tax before registration.

2) Maintain Real Substance

Avoid artificial setups — the FTA increasingly audits Free Zone entities for genuine economic presence.

3) Utilise Expert Tax Support

Professional guidance ensures accurate:

• Registration submission

• Audited accounts preparation

• Transfer pricing compliance

Real-World Example: How Compliance Works in Practice:

Case Study: FZ-Tech Solutions, a software firm in a UAE Free Zone, assumed it didn’t need to register for CT because its income was from foreign clients. A consultant intervened before the deadline to:

• Register the company with FTA

• Prepare audited financials

• File the first corporate tax return on time

This prevented an AED 10,000 penalty and ensured compliance.

Conclusion:

The UAE’s Corporate Tax regime is a transformative framework — geared towards transparency, global competitiveness, and sustainable economic growth.

For Free Zone companies, tax advantages still exist — but they are conditional. Benefits such as 0% corporate tax on qualifying income depend on active compliance, accurate reporting, and fulfilling substance and activity conditions.

Key Takeaways:

• Register with the FTA early — mandatory for all Free Zone companies.

• Achieve and maintain Qualifying Free Zone Person status to benefit from 0% tax.

• File returns annually — even if tax payable is zero.

• Stay compliant with accounting, transfer pricing and ESR rules.

• Avoid penalties — both monetary and loss of benefits.

By aligning your corporate structure, financial reporting, and statutory deadlines with UAE tax law, your Free Zone company can thrive in a compliant and cost-efficient business environment.