Short answer: Registering a company in a free zone does not bring 0% corporate tax. Qualifying Free Zone Person status does, and that depends mainly on whether your business is on the closed list of Qualifying Activities in Ministerial Decision No. 229 of 2025. The list covers 13 types of activity. Consulting, marketing and selling to consumers are not among them. If your business is not on the list, you still have two lawful routes to low or zero corporate tax, both described below.
| Question | Answer |
|---|---|
| What decides 0% corporate tax in a free zone? | The type of activity, or whether the client is another free zone company. Not the licence and not the client's country |
| How many Qualifying Activities are there? | 13 types, plus activities ancillary to them |
| Are consulting, IT or marketing among them? | No |
| Does selling to natural persons qualify? | No, apart from four narrow exceptions |
| How much non-qualifying revenue is allowed? | The lower of 5% of revenue or AED 5 million |
| What else is needed besides the activity? | Substance in the free zone, audited financial statements and arm's length pricing |
| What if the business is not on the list? | Small Business Relief up to AED 3 million of revenue, or the standard regime |
Most "Dubai company" offers rest on a shortcut: free zone equals zero tax. The shortcut skips the one step that decides everything. UAE Corporate Tax does not ask where the company is registered. It asks what the company earns its money from, and from whom. This article sets out the whole list, with the conditions as they are written in the legislation rather than in a sales brochure.
How is a free zone licence different from the Qualifying Activities list?
They are two different lists, kept by two different bodies, serving two different purposes.
| Licence activity list | Qualifying Activities list | |
|---|---|---|
| Who sets it | The authority of each free zone | The UAE Minister of Finance |
| What it defines | What the company is allowed to do | Which income is taxed at 0% |
| How many entries | A great many, depending on the zone | 13 types of activity |
| Does it include consulting, IT, marketing | Yes, in most zones | No |
So you can hold a fully valid consulting licence in any free zone and still have no right to the 0% rate on that consulting income. One does not follow from the other.
The legal basis has two levels. Cabinet Decision No. 100 of 2023 defines which income is Qualifying Income. Ministerial Decision No. 229 of 2025 lists the activities concerned. The latter was issued on 28 August 2025, applies with effect from 1 June 2023, and repealed the earlier Ministerial Decision No. 265 of 2023.
Which activities bring 0% corporate tax in a free zone?
Below is the full list from Article 2(1) of Ministerial Decision No. 229 of 2025. The second column gives the condition the legislation attaches to the name, because that condition usually decides the outcome.
| Activity | Condition written in the legislation |
|---|---|
| Manufacturing of goods or materials | Producing, improving or assembling from raw materials or components |
| Processing of goods or materials | Transforming them into a different product for commercial or industrial use |
| Trading of Qualifying Commodities | Physical trading of metals, minerals, industrial chemicals, energy and agricultural commodities that have a quoted price. Not goods packaged for retail sale |
| Holding of shares and other securities | For investment purposes, meaning held for an uninterrupted period of at least 12 months |
| Ownership, management and operation of ships | International transport only. Not local or recreational shipping |
| Reinsurance services | Under the oversight of the competent authority in the UAE |
| Fund management services | Under the oversight of the competent authority in the UAE |
| Wealth and investment management services | Under the oversight of the competent authority in the UAE |
| Headquarter services | To Related Parties only |
| Treasury and financing services | To Related Parties, or for the company's own account |
| Financing and leasing of aircraft | Including engines and rotable components |
| Distribution of goods or materials | Only in or from a Designated Zone, explained below |
| Logistics services | Storing and transporting another person's goods, without taking title to them |
The fourteenth entry is activities ancillary to the above. The definition is narrow: an activity is ancillary when it is necessary for performing the main activity, or when it makes a minor contribution and is so closely related that it should not be seen as a separate activity (Article 2(4)).
An activity on the list is not enough by itself. The status also requires substance in the free zone, audited financial statements (Ministerial Decision No. 84 of 2025, Article 2(1)(b)) and arm's length pricing in transactions with related parties.
What is the condition for distribution?
Distribution is the only entry where location matters. It qualifies only if all of the following hold:
- the activity is carried out in or from a Designated Zone,
- goods entering the UAE are imported through that Designated Zone,
- the customer is a person who resells, processes or alters the goods, or a public benefit entity.
The Federal Tax Authority explained in Public Clarification TAXP010 that a Designated Zone for VAT is not automatically a Designated Zone for Corporate Tax. The zone must hold both statuses at the same time. Before you build a model on this entry, check the status of the specific zone. There is no separate official list of Designated Zones for Corporate Tax. The starting point is the list of Designated Zones for VAT (Cabinet Decision No. 59 of 2017, as amended), and confirmation of the Corporate Tax status comes from the Free Zone Authority, preferably in writing.
For tax periods starting on or after 1 January 2026 there is also an evidence requirement. Federal Tax Authority Decision No. 6 of 2026 requires a company relying on this entry to obtain an agreed-upon procedures report (ISRS 4400) from an independent auditor and to submit it within 30 days after the deadline for filing the Corporate Tax return. This is a separate document, independent of the annual audit of the financial statements. The auditor tests two things on a sample:
- whether the customers are resellers or processors: trade licences, signed customer declarations, sales agreements and invoices,
- whether the goods entered the UAE through a Designated Zone: customs and shipping documents, inventory and warehousing records.
The auditor also verifies the status of the zone itself, which is why written confirmation from the Free Zone Authority is needed. Without the report, the distribution condition is treated as not met (Article 2(8)). In practice this means collecting customer documents as you go, with each transaction, and not after the year has closed.
Do warehousing and fulfilment qualify?
Here the legislation separates two situations that look similar in practice. Logistics services, meaning storage, order handling, packing, freight forwarding and customs clearance carried out for another person and without taking title to the goods, are on the list. Selling your own goods out of the same warehouse is distribution or trading, with all the conditions described above.
What is not on the list?
| Type of business | Why it does not bring 0% |
|---|---|
| Consulting, advisory, training | Not on the list |
| Marketing agency, creative services | Not on the list |
| IT services and contract software development | Not on the list |
| E-commerce to consumers | Transactions with natural persons are an Excluded Activity |
| Trading goods outside a Designated Zone | Distribution qualifies only in a Designated Zone |
| Letting residential property | Excluded Activity |
This is the profile of most entrepreneurs who consider a free zone company. It does not mean a free zone is the wrong choice for them. It means the 0% rate attached to free zone status is not an argument a decision can rest on.
What about software and SaaS?
Software is not on the activity list, but the legislation gives it a separate route. Cabinet Decision No. 100 of 2023 also treats income from Qualifying Intellectual Property as Qualifying Income. The definition covers patents and copyrighted software. It does not cover trademarks or other marketing-related intellectual property.
The 0% rate then does not cover all the income from the software, only part of it. Article 4 of Ministerial Decision No. 229 of 2025 gives the formula: Qualifying Income is the overall income from the intellectual property multiplied by the share of qualifying expenditures (increased by 30%) in overall expenditures.
| Element of the formula | What it means |
|---|---|
| Qualifying expenditures | The company's own research and development spending, or R&D outsourced within the UAE or to an unrelated party abroad |
| Overall expenditures | All research and development spending, including the cost of acquiring rights |
| Uplift | 30% of qualifying expenditures, but the result cannot exceed overall expenditures |
An example. A company spent AED 1 million on developing its software: AED 600,000 on its own team and AED 400,000 on work outsourced to a related party abroad. Qualifying expenditures are AED 600,000, which after the 30% uplift gives AED 780,000, or 78% of overall expenditures. If income from that software is AED 2 million, the 0% rate covers AED 1.56 million, and the remaining AED 440,000 is taxed at 9%, which gives tax of AED 39,600.
In practice: the more of the software the company developed itself, the larger the part of the income that benefits from 0%. A company that bought a finished product, or outsourced development to a related party abroad, gains little. The excess over the formula result is taxed at 9%. The company must also keep records linking expenditure to income and make them available to the authority on request.
The route is real, but demanding. It is open only to a company with Qualifying Free Zone Person status, meaning substance in the free zone and audited financial statements, and it cannot be combined with Small Business Relief. Whether revenue from a particular SaaS model falls within income from intellectual property requires an analysis of the contracts and of how fees are charged.
Which activities are expressly excluded?
Next to the positive list there is a negative one (Excluded Activities, Article 2(2)). Income from these activities is not Qualifying Income even when the client is another free zone company.
| Excluded Activity | Exception |
|---|---|
| Transactions with natural persons | Ships, fund management, wealth management, financing and leasing of aircraft |
| Banking activities | None |
| Insurance activities | Reinsurance, and intra-group insurance as part of headquarter services |
| Regulated finance and leasing activities | Entries on the positive list: commodities, ships, treasury, aircraft |
| Ownership or exploitation of immovable property | Commercial property in a free zone where the counterparty is a free zone company |
When does the client matter as well?
The legislation divides counterparties into two groups, and only two (Cabinet Decision No. 100 of 2023, Article 3(1)).
| Counterparty | When the income qualifies |
|---|---|
| Free Zone Person | When it uses the service or goods itself and the activity is not excluded |
| Non-Free Zone Person | Only from an activity on the list |
Two points change the picture.
First, a client in Germany or the United Kingdom and a client on the Dubai mainland fall into the same category: a Non-Free Zone Person. The popular claim that it is enough "not to serve the mainland" has no support in the legislation.
Second, with a free zone client what counts is who actually uses the service or the goods. The free zone company must be the Beneficial Recipient, meaning it uses what it receives itself, with no obligation to pass it on. A free zone intermediary that resells your service to a client abroad does not meet this condition.
How much non-qualifying revenue is allowed?
A Qualifying Free Zone Person may have non-qualifying revenue, but within narrow limits. The de minimis threshold is the lower of two values: 5% of total revenue in the tax period, or AED 5 million (Ministerial Decision No. 229 of 2025, Article 3).
Exceeding the threshold does not mean tax on the excess. It means losing the status from the start of that tax period and for the following four (Article 5(2)). For that time the company is taxed under the standard regime.
Several categories of revenue are left out of the calculation, including revenue from intellectual property and revenue attributable to a permanent establishment outside the free zone (Cabinet Decision No. 100 of 2023, Article 4(3)). They follow their own rules.
The status also requires conditions that have nothing to do with the type of activity: adequate substance in the free zone, audited financial statements and arm's length pricing.
What if my business is not on the list?
This is the position of most service businesses, and it is not a bad one. In place of the free zone rate you have two other routes.
Small Business Relief. A company that is resident in the UAE and whose revenue does not exceed AED 3 million in the current and previous tax periods can elect to be treated as having no taxable income. The result is no corporate tax, whatever the activity and whether the company is in a free zone or on the mainland. Three things to know about it:
- it applies to tax periods ending on or before 31 December 2029. The deadline was extended once, in July 2026, from the end of 2026. What happens later is not known, so base longer-term plans on the standard regime,
- once the revenue threshold has been exceeded in any period, the relief is no longer available,
- it cannot be combined with Qualifying Free Zone Person status. A free zone service company whose revenue is non-qualifying does not have that status, so the relief is available to it.
The standard regime. Without the relief, the rate is 0% on taxable income up to AED 375,000 and 9% on the excess. On taxable income of AED 1 million that gives tax of AED 56,250, an effective rate of 5.6%.
| Position of a service company | UAE corporate tax |
|---|---|
| Revenue up to AED 3 million, relief elected | No tax, for periods ending by 31 December 2029 |
| Revenue above AED 3 million | 0% on taxable income up to AED 375,000, 9% above |
| Clients are only free zone companies that use the services themselves | 0% as a Qualifying Free Zone Person, provided the other conditions of the status are met |
Which route to take depends on revenue, the type of clients and your plans for the coming years. It is a calculation to make before setting up the company, not after.
Everything above concerns the company's tax. How the owner is taxed is a separate question, decided by the country where the owner is tax resident. As long as you remain resident in your home country, its controlled foreign company rules may apply as well. They can be left behind through a real, planned change of tax residence. How the two levels fit together is covered in our article on when 0% in Dubai actually works, and the ways of extracting profit in the article on taking profit out of a UAE company.
What is out of date in circulation?
A large share of free zone material still cites Ministerial Decision No. 265 of 2023 as the basis for the list. That decision has been repealed. A reference to it even survives in a later instrument from the ministry itself: Ministerial Decision No. 84 of 2025 on audited financial statements points to it in Article 2(3), because it was issued five months before the new list.
If the material you are relying on cites number 265, check its publication date and compare it with the text of the decision now in force.
In short: The 0% free zone rate is decided by a closed list of 13 activities, or by the client being another free zone company. It is not decided by the licence or by the client's country. Consulting, marketing, contract software development and selling to consumers are not on the list. Software has a separate route through intellectual property, proportional to the company's own development spending. Everyone else has Small Business Relief up to AED 3 million of revenue (currently to the end of 2029) or the standard regime: 0% on taxable income up to AED 375,000 and 9% above. That is still a low tax. It just has to be calculated properly.
Legal instruments and sources
The content of this article comes from the text of the instruments, not from commentary on them.
- Ministerial Decision No. 229 of 2025: Qualifying Activities and Excluded Activities, issued 28 August 2025. Article 2(1): list of Qualifying Activities. Article 2(2): Excluded Activities. Articles 2(3) and 2(4): definitions and ancillary activities. Article 3: de minimis threshold. Article 4: income from Qualifying Intellectual Property. Article 5(2): loss of status. Article 6: repeals Ministerial Decision No. 265 of 2023. Article 7: applies from 1 June 2023.
- Cabinet Decision No. 100 of 2023: Qualifying Income. Article 1: definitions, including Qualifying Intellectual Property and Designated Zone. Articles 3(1) to 3(3): categories of income and Beneficial Recipient. Article 4: de minimis. Article 7: intellectual property. Article 8: substance.
- Federal Decree-Law No. 47 of 2022: the Corporate Tax Law. Article 3: rates. Article 18: Qualifying Free Zone Person. Article 21: Small Business Relief.
- Cabinet Decision No. 116 of 2022: the AED 375,000 threshold. Articles 2(1) and 3.
- Ministerial Decision No. 73 of 2023 as amended by Ministerial Decision No. 131 of 2026: Small Business Relief. Article 2: the AED 3 million threshold and the end date. Article 3: exclusions.
- Ministerial Decision No. 84 of 2025: audited financial statements. Articles 2(1)(b) and 2(3).
- Federal Tax Authority Decision No. 6 of 2026: additional procedures for distribution in or from a Designated Zone, issued 2 June 2026, applies to tax periods starting on or after 1 January 2026. Article 2: agreed-upon procedures report, documentation and deadline. Article 3: scope of procedures and sampling.
- FTA Public Clarification TAXP010: Designated Zones for Corporate Tax, VAT and Excise Tax.
Frequently Asked Questions
Does consulting in a UAE free zone get 0% corporate tax? Not because of the activity itself. Consulting is not on the Qualifying Activities list in Ministerial Decision No. 229 of 2025. The 0% rate covers only revenue from other free zone companies that use the service themselves. With revenue up to AED 3 million, the company can instead elect Small Business Relief.
Does the activity list on a free zone licence decide the tax rate? No. The licence says what the company is allowed to do. The 0% rate is decided by a separate list of Qualifying Activities set by the UAE Minister of Finance. These are two different lists.
Does online selling to consumers qualify for 0% corporate tax? No. Transactions with natural persons are an Excluded Activity, apart from four narrow exceptions (ships, fund management, wealth management, aircraft). Revenue from B2C e-commerce is therefore non-qualifying in every free zone.
Can a software or SaaS company get 0% corporate tax in the UAE? Software is not on the activity list, but there is a separate route: income from Qualifying Intellectual Property, which includes copyrighted software. The 0% rate then covers only part of the income, calculated with a formula based on the company's own research and development spending.
What happens when non-qualifying revenue exceeds the limit? The limit is the lower of 5% of total revenue or AED 5 million. Once it is exceeded, the company loses Qualifying Free Zone Person status from the start of that tax period and for the following four, and moves to the standard regime.
What applies if my business is not on the list? The standard regime: 0% on taxable income up to AED 375,000 and 9% above. With revenue up to AED 3 million, the company can elect Small Business Relief and pay no corporate tax at all, for tax periods ending on or before 31 December 2029.
This article is for educational purposes only and should not be treated as legal or tax advice. Every situation requires individual analysis.