The UAE’s corporate tax regime, implemented in June 2023, has transformed the business landscape. Here’s a comprehensive breakdown of how it affects Free Zone and Mainland companies, with key compliance requirements and strategic considerations.
UAE Corporate Tax Fundamentals
Key Features:
- Standard rate: 9% on taxable profits > AED 375,000
- 0% rate for profits up to AED 375,000 (small business relief)
- Financial year basis for calculations
- Introduced transfer pricing documentation requirements
Taxable Persons:
- Mainland LLCs and commercial establishments
- Free Zone companies (with conditions)
- Foreign entities with Permanent Establishment (PE)
- Natural persons conducting business activities
Free Zone vs Mainland Taxation
| Aspect | Mainland Companies | Qualifying Free Zone Companies |
| Standard Tax Rate | 9% above threshold | 0% if conditions met |
| Tax Base | Global income with PE | UAE-sourced income only |
| Substance Requirements | Standard compliance | Strict physical presence rules |
| Audit Requirements | Mandatory | Enhanced documentation |
| Withholding Tax | 0% | 0% |
Free Zone Qualifying Conditions
To maintain 0% tax status, Free Zone companies must:
- Conduct only approved activities (manufacturing, trading, logistics etc.)
- Maintain adequate substance (physical office, employees)
- Not conduct business with UAE mainland (except specific exceptions)
- Comply with transfer pricing rules
- File annual compliance declaration
Important: Non-qualifying FZ companies pay 9% like mainland firms.
Compliance Timeline
- Registration: Within 3 months of license issuance
- Filing: Annual return within 9 months of FY end
- Payment: Due with tax return filing
- Document Retention: 7 years minimum
Strategic Considerations
For Mainland Businesses:
- Optimize deductions (salaries, rent, depreciation)
- Consider group structuring opportunities
- Implement robust accounting systems
For Free Zone Businesses:
- Carefully monitor qualifying activities
- Maintain proper substance
- Document all transactions meticulously
- Consider mainland branch if local sales needed
How Ez Bizz Corporate Services LLC Can Help
Our corporate tax services include:
- Tax registration assistance
- Compliance filing and reporting
- Free Zone qualification assessments
- Transfer pricing documentation
- Tax optimization strategies
- Audit support
📞 Call our tax experts: +971 52 610 6577
📧 Email: info@ezbizzsetup.com
The UAE corporate tax system remains competitive globally, especially for qualifying Free Zone businesses. Proper planning and compliance are essential to maximize benefits while meeting all regulatory requirements.