Free Zone vs Mainland Corporate Tax in the UAE 2025: Myth‑Buster Guide
When the UAE rolled out Federal Decree‑Law No 47 of 2022, many firms assumed the Free Zone promise of “0 % corporate tax forever” was locked in. Not anymore. The 2025 rules split businesses into two very different camps—and the cost of choosing wrong can hit 9 % (or even 15 % for large groups). Below is a fast, fact‑checked breakdown to help you stay on the right side of the Federal Tax Authority (FTA).
The Headline Rates
| Company Type |
Standard Corporate Tax |
Key Extra Rules |
| Mainland Entity |
9 % on taxable profits above AED 375,000 |
First AED 375 k at 0 %. Applies to all UAE‑sourced and foreign PE income. |
| Qualifying Free Zone Person (QFZP) |
0 % on qualifying income, 9 % on non‑qualifying income |
Must meet Cabinet Decision 55 / 2023 conditions. |
| Large Multinational (≥ €750 m revenue) |
15 % Domestic Minimum Top‑Up Tax from Jan 2025 |
Overrides 0 % or 9 % if the global minimum tax applies. |
Who Counts as a “Qualifying Free Zone Person”?
Maintain adequate substance in the Free Zone (office, staff, activity).
Earn qualifying income, for example:
- Transactions with other Free Zone Persons.
- Goods exported outside the UAE.
- Qualifying ancillary services.
Exclude non‑qualifying income, such as:
- Income from UAE mainland customers (unless through a branch that is taxed at 9 %).
- Income from real estate (other than commercial property leased to Free Zone Persons).
- Prepare audited financial statements.
- Elect to apply the Free Zone regime and not opt out.
– Fail one test and the 9 % rate applies for that year and the next four years.
Five Myths Debunked
| Myth |
Reality |
| "A Free Zone licence = automatic 0 %." |
Only qualifying income stays at 0 %. Domestic PEs, real‑estate income and non‑qualifying transactions face 9 %. |
| "I can invoice mainland clients from my Free Zone office and keep 0 %." |
Mainland sales are non‑qualifying; they attract 9 % unless routed through a separately taxed branch. |
| "Small profit? I’m below the AED 375k slab, so no filing needed." |
All entities—Mainland and Free Zone—must register and file returns even if tax due is zero. |
| "The 15 % global minimum tax won’t touch Free Zones." |
Large groups exceeding €750 m turnover face the top‑up tax from January 2025. |
| "I’ll switch between regimes year‑to‑year." |
Opting out of the Free Zone regime makes the election irrevocable for 5 years. |
Compliance Checklist for 2025
- Map your revenue streams: split qualifying vs non‑qualifying income monthly.
- Review contracts: mainland customer clauses may break QFZP status.
- Substance test: ensure lease, payroll, and activity logs match Free Zone claims.
- Register your entity on the FTA portal before your first tax period begins.
- Audit readiness: appoint auditors familiar with Cabinet Decision 55 rules.
- Monitor OECD Pillar Two thresholds if group turnover is near €750 m.
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