Where the 9% actually starts
UAE corporate tax is straightforward on the surface. Profit up to AED 375,000 is taxed at 0%. Everything above it is taxed at 9%. The threshold applies per taxable person, not per group, so three companies under one owner each get their own band.
What catches people out is the free zone part.
A free zone licence does not grant 0% by itself. Zero applies only to a Qualifying Free Zone Person (QFZP), and only to that company's qualifying income. Everything else is taxed at 9% — and non-qualifying income does not get the AED 375,000 band at all. It is taxed from the first dirham.
To be a QFZP, a company has to meet every one of these, every single year:
- It is incorporated, established or registered in a UAE free zone
- It has adequate substance in the zone: the core income-generating activity, the assets, qualified staff and operating expenditure are actually there
- Its income falls within the defined categories of qualifying income
- It has not elected to be taxed under the standard regime
- It complies with transfer pricing rules and keeps OECD-aligned documentation
- It prepares audited financial statements under IFRS, regardless of company size
That last point surprises small companies most. A two-person free zone company claiming 0% still needs a full audit.
The de minimis rule, and why one invoice matters
Qualifying income comes from transactions with other free zone persons and from a defined list of qualifying activities. Income from mainland clients is generally not qualifying.
There is a tolerance, and it is narrower than most owners think. Non-qualifying revenue must stay below the lower of AED 5 million or 5% of total revenue.
Note which figure governs for a small company. A free zone business with AED 2 million in annual revenue has a 5% ceiling of AED 100,000. One AED 120,000 invoice to a mainland client breaches it.
The consequence is not proportional. Breaching the de minimis test does not tax that one invoice at 9% — it removes QFZP status for the entire tax period, so all profit is taxed at 9%. And the loss carries forward: the company is treated as taxable at the standard rate for that year and the following four years, with a chance to re-test in the sixth.
One invoice, five years.
This is why activity codes and client mix matter at the registration stage, not after the first mainland contract arrives.
Deadlines, penalties and what they cost
Registration is on EmaraTax and produces a Tax Registration Number, which is required before the first return can be filed. Companies incorporated after 1 March 2024 must register within three months of incorporation. Late registration carries a fixed penalty of AED 10,000.
The return and any payment are due nine months after the financial year ends. For a year ending 31 December 2025, that is 30 September 2026. There is no extension mechanism.
Penalties were revised under Cabinet Decision No. 129 of 2025, effective 14 April 2026:
- Late filing: AED 500 per month for the first twelve months, then AED 1,000 per month
- Late payment: 14% per year on unpaid tax, calculated daily, with no cap
The late payment figure deserves attention. It is not a fixed fine that stops growing — it accrues daily on the outstanding amount for as long as it stays unpaid.
What to check in your own company
Four questions answer most of it:
- Are you claiming QFZP status, and can you evidence substance in the zone?
- What share of your revenue comes from mainland clients, in dirhams, not in feel?
- Do you have audited IFRS statements, or only bookkeeping?
- If you rely on Small Business Relief, what is your plan for the 2027 tax period?
If the answer to any of these is unclear, that uncertainty is the thing to resolve — not the tax itself.
Figures and deadlines reflect published requirements at the time of writing. Corporate tax rules and Cabinet Decisions change; confirm current positions with the Federal Tax Authority or your tax adviser before acting on them. This article is general information, not tax advice.
