UAE corporate tax is 9%. Free zone companies can qualify for 0% — but only if they meet five specific conditions under the QFZP regime. Most do not. And the risk is not just UAE tax: if your home country decides your Dubai company is a shell, they will tax it at home rates. In some cases, 0% becomes 45%.
Thinking you can open a company in the UAE and pay 0% tax? You need to think again.
Corporate tax in the UAE is 9%. And if you do not get it right, you are at risk of being reclassified by your home country’s tax authority — and paying way more than 9%. I have seen it. And it is not just about the UAE tax laws. It is about how you structure your business, your life, your family, and pretty much everything.
The Numbers You Need to Know
- 9% — UAE corporate tax rate (since June 2023, no exceptions by zone)
- 0% — qualifying rate for QFZP companies on qualifying income
- AED 375,000 — zero-rate threshold for standard companies
- AED 3,000,000 — Small Business Relief threshold (0% if below this)
- 5% — de minimis cap on non-qualifying income
- 5 years — lockout period if you lose QFZP status
How 0% Becomes 45%
I had a client — let’s call him Marc. He left France, set up a UAE company, kept doing business with his French clients. Did not exit French tax properly. His family stayed in France. His life stayed in France. Just his company moved.
The French tax authority found out. They looked at the whole setup and said — your company is a shell. Your income is French. And that brought his 0% UAE corporate tax to 45%. Plus penalties. Plus VAT fines. Plus interest. By the time we saw him, he was paying more than he would have paid if he had never left France.
This is not a one-off. I hear this story every single week. The details change. The outcome does not.
The 5 Conditions for QFZP Status
Here is the deal. To pay 0% corporate tax in a UAE free zone, your company needs to qualify as a QFZP — a Qualifying Free Zone Person. Five conditions. All five. Miss one and you are out.
- Free zone incorporation — must be a UAE free zone entity
- Qualifying income — manufacturing, processing, holding, HQ services to related parties, treasury, fund management (regulated only), logistics, distribution from designated zones, shipping, reinsurance. That is the full list. If your activity is not on it, it is taxed at 9%.
- Economic substance — real employees in the UAE, real decisions made here, documented. Not a registered address and a virtual desk.
- De minimis rule — non-qualifying income must stay below 5% of total revenue or AED 5 million, whichever is lower. Go over by one dirham and you lose the status. Not just on the extra income. On everything.
- Compliance — registered for corporate tax, returns filed on time, transfer pricing documentation in place.
Miss any one of those and you lose QFZP status for five years. Not just the year you got it wrong. Five years. And during that time, 9% from the first dirham. No AED 375,000 zero-rate band. Worse than a mainland company. That is the reality.
The Salary Trap the FTA Will Catch
Here is one I see constantly. A founder does more than AED 3 million in turnover. They pay themselves a large salary from the company to wipe out the profit. No profit, no tax. Congratulations.
Except that is not how it works. The FTA specifically prohibits artificially extracting money to avoid tax. When the audit comes — and it comes — they assess the actual taxable profit. Not the number after the salary. The real number. And then they add penalties on top of it.
Consulting. Full Stop.
I want to be very direct about this one. If you are a consultant, an advisor, a coach, an agency owner — your income is not qualifying income. Ministerial Decision 262 of 2023 explicitly excludes consulting from the list. It does not matter where your clients are. London, Singapore, New York — it does not matter. The activity determines the tax treatment. Not the geography of the invoice.
If you have set up in a free zone thinking you will pay 0%, and your activity is consulting, you need to look at your structure. Now. Not when you get the assessment.
How to Actually Exit Your Home Country
This is the step most people skip. They move to Dubai. They open the company. They get the visa. And then they wonder why their home country is still after them two years later.
Your home country looks at where your family is, where your kids go to school, where you spend more than 183 days. You need to formally tell them you are leaving. Get a local tax advisor in your home country to handle the exit notification. Get your UAE visa, your Emirates ID, your tenancy contract. Make it clear. Document it. And then actually live here.
If you are trying to run a Dubai company while everything else in your life stays where it was — that is not a move. That is a document exercise. And it will not hold up.
Frequently Asked Questions
What is the UAE corporate tax rate?
9%, introduced June 2023. Applies to all UAE-incorporated companies regardless of zone. Zero-rate threshold at AED 375,000. Small Business Relief at 0% available for companies under AED 3 million turnover.
Can a UAE free zone company pay 0% corporate tax?
Yes — if it qualifies as a QFZP. All five conditions must be met: free zone incorporation, qualifying income, economic substance, de minimis compliance, and timely filings. Consulting is excluded from qualifying activities under MD 262/2023.
What happens if you lose QFZP status?
Five-year lockout. All income taxed at 9% from the first dirham. No AED 375,000 zero-rate band. No Small Business Relief. Worse than a UAE mainland company during the lockout period.
Does a UAE company protect you from home country tax?
Not automatically. If you maintain family, residency, or your center of vital interests in your home country, they can reclassify your UAE income and tax it at local rates. The UAE company needs to have real substance — not just a license.
Is consulting taxed in UAE free zones?
Yes. Explicitly excluded under MD 262/2023. Consulting income in free zones is taxed at 9%, regardless of where clients are located.
If you are not certain whether your structure is correct, book a free 30-minute Business Risk Assessment. We will look at your setup, tell you where the exposure is, and tell you what needs to change. No pitch. Just a real look at your structure.
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FAQ
1. 0 What is an LLC in the UAE mainland?
An LLC in the UAE mainland is a company structure that allows full access to the local market, trade with government entities, and sponsor visas. It requires compliance with UAE LLC requirements.
2. 0 Can foreigners fully own a mainland LLC?
Yes. Most business activities now allow 100% foreign ownership, though some regulated sectors may still need a UAE national partner.
3. 0 How long does LLC setup in UAE mainland take?
Typically 2–4 weeks, depending on approvals, documents, office registration, and business activity type.
4. 0 Is a physical office required for a mainland LLC?
Yes. A physical office or flexi-desk is mandatory and affects visa eligibility and staff quotas for mainland business setup UAE.
5. 0 Can a mainland LLC sponsor visas?
Yes. Shareholders and employees can be sponsored based on office size and approved activities. Investor visas last up to three years.
