No free zone can exempt you from a federal tax, and none of them ever could

The short answer, and why the reason behind it matters more

No. A free zone company in the UAE is inside the scope of corporate tax, and it has been for every tax period commencing on or after 1 June 2023 — the commencement the Decree-Law fixes for itself.

That answer is easy. The reason behind it decides what you do next, and it is structural rather than political: corporate tax is imposed by Federal Decree-Law No. 47 of 2022 and administered by the Federal Tax Authority. A free zone authority licenses companies, leases premises and holds immigration files. It has no power to relieve anybody of a federal charge, and it never acquired one. The question "is my zone still tax free" is therefore being put to a body that cannot answer it.

Something narrower does exist, it is conditional, it is re-tested every tax period, and for the right company it is worth having. This page is written for a company that already holds a free zone licence and wants to know where it actually stands. If the company does not exist yet, the decision is a different one and it sits in UAE corporate tax for new companies.

The question contains three questions, and only the third has an answer

"Is my free zone company still tax free" folds three separate questions into one sentence. Separating them is most of the work.

Is the free zone tax free? A geographic area is not a taxpayer. Nothing is charged to a zone, so nothing can be relieved to one.

Is my company tax free? No company is relieved as an entity. There is no certificate, no exempt list, and no line on the licence that does this.

Is this income relieved? This is the only version the law answers, and it answers it one tax period at a time.

The fifty-year tax holiday in your zone's founding documents sets a time limit, not the relief

A zone's own legislation can stipulate a tax incentive period, and the Decree-Law says so itself. Article 18(4) provides that the 0% rate applies for the remainder of the tax incentive period stipulated in the applicable legislation of the free zone, that the period may be extended on conditions set by Cabinet decision, and that any one period shall not exceed fifty years. So a founder reading decades of promised freedom from taxes in a founding decree, or repeated in a lease, is not inventing anything.

It is still not the answer, and the reason is precise. Article 18(4) is the one place where the Decree-Law looks at a free zone's own legislation, and what it takes from it is a time limit rather than a relief. The zone's incentive period bounds how long the 0% can run for a company that passes the federal conditions; it does not create the 0%, and it cannot save a company that fails those conditions inside the period. Article 18(1) remains the only route into the status and Article 3(2) the only provision that applies the 0% rate to it. A zone authority cannot widen either, and nothing it issues stands in their place.

This is why a zone's sales team can be entirely sincere and still leave you with the wrong answer. They are describing a document that exists and that says what they say it says. It is simply not the document that decides the federal question.

What the 0% actually attaches to

Two articles do the work, and most summaries run them together. Article 3(2) of the Decree-Law sets the rates for a Qualifying Free Zone Person: 0% on qualifying income, and 9% on taxable income that is not qualifying income. Article 18 sets the conditions for being one.

Keeping them apart matters, because Article 3(2) carries a sting. The nil-rate band sits in Article 3(1), and the Cabinet decision that fixes its amount is made expressly for Article 3(1)(a) — so a Qualifying Free Zone Person does not get it. On income that is not qualifying income, the 9% starts at the first dirham. At the date of review (16 September 2026), that band is the first AED 375,000 of taxable income under Cabinet Decision No. 116 of 2022.

The status is not an exemption. It is a rate applied to a character of income, held by a company that meets a set of conditions in that tax period — four of them named in Article 18(1), a fifth that hands the Minister power to add more, and two the Minister has added under it.

1. Adequate substance in the State. Article 18(1)(a) puts it that way, and Cabinet Decision No. 100 of 2023 fills it in: the core income-generating activities must be undertaken in a free zone or a designated zone, with adequate assets, an adequate number of qualified full-time employees and an adequate amount of operating expenditure for each activity. Those activities may be outsourced to another person in a zone, provided the company keeps adequate supervision of the outsourced work. No headcount, floor area or spend figure appears in either instrument; "adequate" is the whole of the published test, and the Cabinet decision measures it against the level of the activities the company actually carries out.
2. Qualifying income, as determined by Cabinet Decision No. 100 of 2023, with the activity lists in Ministerial Decision No. 229 of 2025.
3. No election into the standard regime. Article 19(1) lets a free zone company choose the ordinary rates instead, and sometimes it should.
4. Arm's length pricing and transfer pricing documentation — compliance with Articles 34 and 55.
5. Anything further the Minister prescribes. Article 18(1)(e) is a delegation, and it has been used.

The two conditions added under that fifth limb sit in Article 5(1) of Ministerial Decision No. 229 of 2025. Non-qualifying revenue must stay inside the de minimis. And the company must prepare audited financial statements in accordance with Ministerial Decision No. 84 of 2025, which binds a Qualifying Free Zone Person at any revenue level at all. That is the asymmetry worth pricing: the same decision reaches an ordinary taxable person outside a tax group only once its revenue exceeds AED 50,000,000.

Qualifying income itself has four heads. Income from transactions with another free zone person, where that person is the beneficial recipient rather than a conduit, and the income is not of an excluded character. Income from a listed Qualifying Activity, even where the customer sits outside a zone, again excluding the excluded heads. Income from qualifying intellectual property. And, fourth, any other income — provided the de minimis is satisfied. The current lists name thirteen qualifying heads plus activities ancillary to them, and five Excluded Activities plus their ancillaries.

Two categories never reach the 0% and sit outside the de minimis arithmetic entirely: income attributable to a domestic or foreign permanent establishment, and free zone immovable property income in the two cases the Cabinet decision lists. Those are taxable at 9%, with no nil-rate band, in a period the company otherwise passes cleanly.

Nine ways a free zone company stops being tax free

This is the diagnostic. Read it against your own last twelve months of invoices rather than against your licence category.

Five of those are worth expanding, because they are the ones that actually happen.

The de minimis is a cliff rather than a slope. At the date of review (16 September 2026), non-qualifying revenue is tolerated up to the lower of 5% of total revenue or AED 5,000,000 in a tax period, under Article 3 of Ministerial Decision No. 229 of 2025. Note where those figures live: the Cabinet decision that defines qualifying income sets neither of them, it delegates both to the Minister, which is why the numbers can move without a word of the Cabinet decision changing. Under the line, the arithmetic is kinder than most summaries suggest — the Cabinet decision's fourth head takes any other income into qualifying income where the de minimis is satisfied, so that revenue is not carved out and charged separately. Over the line, the condition fails, and the status goes: not for the excess, for everything, for five tax periods.

Most free zone services businesses are earning non-qualifying income. General consultancy, marketing, recruitment, design and IT services sold to a mainland or overseas customer appear nowhere in the thirteen qualifying heads. The company was licensed in a zone for the 0%, and while the de minimis will absorb a little of that work, it will not absorb a services business built on it.

Nobody issues you the status. The Decree-Law provides an application route where it wants one — a tax group is formed by application to the Authority under Article 40(1) — and Article 18 provides none. The status attaches to a company that meets the conditions in the period. You take the position in your own return, and the Authority can test it afterwards against records you either kept or did not.

Ministerial Decision No. 229 of 2025 reaches backwards. It was issued on 28 August 2025, it repeals the earlier qualifying and excluded activities decision, and it comes into effect on 1 June 2023. The lists in force today therefore reach back to the start of the regime, which means an analysis run before the decision was issued was run against lists that have since been replaced for the periods it covered.

A distribution position now needs an auditor's report of its own. Under FTA Decision No. 6 of 2026, issued on 2 June 2026, a Qualifying Free Zone Person whose qualifying activity is the distribution of goods or materials in or from a designated zone must obtain an agreed-upon procedures report from an independent auditor — the one that audits its financial statements, or another auditor licensed in the State — prepared under the ISRS 4400 standard. It applies to tax periods beginning on or after 1 January 2026, which for a calendar-year company is the period now running. It changes no rate, but it is not optional: the report goes to the Authority no later than thirty days after the return deadline, and a company that does not submit it is treated as not meeting the distribution condition. It is recent enough that a compliance calendar drawn up earlier will not have it on it.

The de minimis, worked at three revenue levels

The allowance is a percentage of your own revenue, so the smaller the company the less room it has. At the top of this table one unbudgeted contract is absorbed. At the bottom it ends the regime. The rows apply the test as it stands at the date of review (16 September 2026).

The allowance stops growing once 5% of revenue reaches AED 5,000,000 — at total revenue of AED 100,000,000 — because the test takes the lower of the two measures. Above that point the cash cap binds, however large the company becomes.

Two adjustments are easy to miss, and both cut the same way. Revenue attributable to a permanent establishment, the two categories of free zone immovable property revenue, and revenue from exploiting intellectual property outside the qualifying head all come out of both sides of the fraction. They do not consume the allowance, and they do not enlarge it either. They are simply taxed.

What losing the status costs, and the case where it saves you money

A breach removes the status from the start of that tax period and for the following four tax periods. Five periods, from one transaction. It is worth knowing where the four extra periods come from, because it is not the place most people look: Article 18(2) of the Decree-Law says only that the company ceases to be a Qualifying Free Zone Person from the beginning of that tax period. The four subsequent periods come from Article 5(2) of Ministerial Decision No. 229 of 2025, a decision of the Minister — and Article 18(3) is the clause that lets the Minister depart from the law's own cessation date. And because it is backdated, a breach is usually discovered after the year it applies to has closed.

Now the part almost nobody models. A company that is not a Qualifying Free Zone Person is an ordinary taxable person charged under Article 3(1), and an ordinary taxable person gets two things a Qualifying Free Zone Person does not: the nil-rate band, and eligibility to elect Small Business Relief. At the date of review (16 September 2026), the band is the first AED 375,000 of taxable income under Cabinet Decision No. 116 of 2022; the relief's revenue ceiling is AED 3,000,000 under Ministerial Decision No. 73 of 2023, tested in the relevant period and in every previous one; and the relief runs to tax periods ending on or before 31 December 2029, the date Ministerial Decision No. 131 of 2026 substituted for the original cut-off.

Read the third row twice. For a small free zone company, the most valuable position in the regime is frequently the one where it gives up the status the licence was sold on. Ministerial Decision No. 73 of 2023, which sets the relief's terms, excludes a Qualifying Free Zone Person by name, so the two are alternatives rather than a stack — and the ceiling is a cliff, not a taper: exceed it in any period, relevant or previous, and the election is closed to that company.

The table also counts tax only, and two costs sit outside it. On the Qualifying Free Zone Person side, put the audit, the transfer pricing file and premises that would survive a substance review, at whatever your auditor and landlord quote; the gap in the first two rows narrows or inverts. On the Small Business Relief side, the election forfeits that period's tax losses rather than carrying them forward, which matters to a company that expects to be profitable soon.

The part of the old promise that survived is not about tax on your profit

The UAE does not levy income tax on individuals, and that reaches every licence in the country rather than only the ones inside a fence.

For goods, something genuinely zone-shaped does survive, and it lives in the VAT law rather than this one. A zone that the Cabinet has specified as a Designated Zone is treated as being outside the State, on conditions that include a fenced perimeter and customs controls over the movement of goods in and out; and the rules for moving goods between two such zones turn on customs suspension under the GCC Common Customs Law. Note the qualifier: being a free zone does not make an area a Designated Zone, and a zone that stops meeting the conditions is treated as inside the State again. That is a working-capital advantage about goods, and about nothing else — and whether your own zone holds that specification is a question for VAT and corporate tax compliance rather than for the rate on this page.

Both come from different laws and different bodies than the one on this page. Which free zone benefits survived the reforms sorts the rest of the brochure by who actually provides each item, and customs codes and moving goods after the trade licence covers the duty position properly.

Where chasing the 0% is the wrong answer

You sell services to mainland or overseas customers. The income is non-qualifying, the de minimis will not absorb a business built on it, and the status is out of reach. Choosing a zone for the tax position here buys nothing and commits you to a zone's fee schedule.

You are small. Audited financial statements are compulsory for a Qualifying Free Zone Person at any revenue, where an ordinary company outside a tax group reaches that obligation only well up the revenue scale. On a company earning a few hundred thousand, the audit, the transfer pricing file and the substance can cost more than the tax the status was meant to remove — while Small Business Relief, which the status forces you to give up, removes that tax entirely.

You hold several companies and want to consolidate. A Qualifying Free Zone Person cannot be in a tax group at all: Article 40(1)(f) makes it a condition of forming one that neither the parent company nor the subsidiary is a Qualifying Free Zone Person. The group you wanted is blocked by the status you protected, and the alternative a small group usually reaches for, Small Business Relief, gives up that period's losses. A UAE tax group is easier to enter than to leave sets out what that group would and would not do for you.

Your real problem is where you live. A UAE company run from London, Mumbai or Toronto can be taxed there whatever the UAE charges, and a 0% here does not touch it. See nine per cent in the UAE does not settle what you owe where you live.

Your customer base is about to change. A relief re-tested every tax period is a poor foundation for a decision taken once. If one mainland contract is foreseeable, the status is already fragile.

Nobody has priced the alternative. The choice between the status and the reliefs it blocks is arithmetic on your own numbers, and it is answerable in an afternoon. Which reliefs and elections are actually available, and what each one forecloses, is set out in which UAE tax reliefs a company can choose between.

Tell our tax and financial advisory team your activity, your customer mix by revenue and your last audited position, and we will tell you which row of the arithmetic above you are actually in — including where the honest answer is that the status is worth less to you than the relief it blocks.

Frequently asked questions