UAE Corporate Tax Rules Create Costs for Mainland and Free Zone Businesses

UAE businesses choosing between mainland and free zone structures face different Corporate Tax calculations in 2026. Mainland companies generally pay 0% on taxable income up to AED375,000 ($102,110) and 9% on income above that threshold. Qualifying Free Zone Persons can apply a 0% rate to Qualifying Income, while Non-Qualifying Income is subject to 9%.

Federal Tax Authority guidance states that Qualifying Free Zone Persons cannot apply the AED375,000 zero-rate threshold to income that does not meet the Qualifying Income requirements. As a result, the final tax cost depends on factors including profit levels, revenue classification, audit obligations and eligibility for available reliefs.

Mainland companies follow standard Corporate Tax bands

Mainland businesses calculate Corporate Tax under the UAE’s standard rate structure. Taxable income up to AED375,000 is subject to a 0% rate, while taxable income exceeding that threshold is taxed at 9%.

A company with AED1m ($272,300) in taxable income would incur approximately AED56,250 ($15,317) in Corporate Tax before accounting for any applicable reliefs.

A Qualifying Free Zone Person generating the same amount entirely from non-qualifying taxable income could face a Corporate Tax liability of AED90,000 ($24,506), as the 9% rate applies to the full amount of non-qualifying income.

Eligible resident businesses can also benefit from Small Business Relief for qualifying tax periods ending on or before December 31, 2026. Businesses must have revenue of no more than AED3m ($816,882) during the relevant and applicable previous tax periods. Qualifying Free Zone Persons are not eligible to elect for Small Business Relief.

Free zone income classification determines the tax rate

Qualifying Free Zone Persons can retain the 0% Corporate Tax rate on income that meets the Qualifying Income requirements, provided they continue to satisfy the relevant conditions during each applicable tax period.

Ministerial Decision No. 229 of 2025 updated the qualifying activity rules from September 2025. The changes expanded qualifying commodity trading to include industrial chemicals, associated byproducts and environmental commodities, while Ministry guidance also clarified treasury and financing services provided to related parties.

Non-qualifying revenue must remain within the applicable de minimis threshold, which is set at the lower of 5% of total revenue or AED5m ($1.36m). Businesses that exceed the limit can lose their Qualifying Free Zone Person status from the beginning of the relevant tax period and for the following four tax periods.

This makes accurate revenue classification important for determining the effective Corporate Tax liability. Free zone businesses need transaction records that clearly distinguish qualifying revenue from income subject to the standard 9% rate.

Audit requirements add to free zone compliance costs

Ministerial Decision No. 84 of 2025 requires Qualifying Free Zone Persons to prepare and maintain audited financial statements, regardless of their revenue level.

Other taxable persons generally become subject to the statutory audit requirement when annual revenue exceeds AED50m ($13.6m). Tax groups are also required to prepare audited special-purpose aggregated financial statements under the 2025 rules.

Businesses seeking the 0% free zone rate must also maintain adequate substance and documentation to support their Qualifying Income calculations. The applicable rules make audited accounts part of the requirements for maintaining Qualifying Free Zone Person status.

Mainland companies below the statutory audit threshold may therefore have a different compliance cost structure, although actual expenses vary depending on licensing arrangements, accounting requirements, transaction volumes and other regulatory obligations.

September deadline brings 2025 Corporate Tax liabilities into focus

Federal Tax Authority requirements bring these differences into the 2026 filing cycle. Businesses generally have nine months from the end of their tax period to file their Corporate Tax returns and settle any liabilities.

For businesses with financial years ending on December 31, 2025, the deadline to file Corporate Tax returns and pay any liability is September 30, 2026. FTA guidance issued on September 2, 2026, also confirms that businesses electing for Small Business Relief must submit their simplified returns within the applicable statutory period.

Free zone businesses therefore need to assess revenue classification before determining their final Corporate Tax liability. Mainland companies apply the standard taxable income bands alongside any reliefs for which they qualify, while Qualifying Free Zone Persons must continue meeting the qualifying conditions, monitor the de minimis threshold and comply with mandatory audit requirements.

The differences in tax treatment, eligibility and compliance obligations ultimately determine the Corporate Tax costs associated with mainland and free zone business structures.