Many founders assume a free zone licence guarantees 0% Corporate Tax. In practice, the free zone position depends on whether the company meets the Qualifying Free Zone Person conditions and whether its income is qualifying.
Practical Review Areas
- Licence activity and actual business activity
- Where management and core income-generating activities take place
- Customers and suppliers: mainland, free zone, foreign, or related party
- Qualifying and non-qualifying income split
- Transfer pricing documentation
- Audited financial statement requirements where applicable
Questions to Ask Before Filing
- 1Does the company have adequate UAE substance?
- 2Are transactions correctly classified?
- 3Is any mainland income present?
- 4Are related-party prices defensible?
- 5Has the company elected out of the free zone regime?
- 6Are records strong enough for an FTA query?
Free zone tax treatment should be reviewed before the Corporate Tax return is prepared, especially where the company sells to mainland UAE customers.
For mixed-income free zone companies, accounting segmentation is essential. Separate revenue streams and direct costs early so the tax calculation does not depend on guesswork.