UAE Free Zone companies operate under specific tax rules established by Federal legislation and Free Zone Regulatory Authorities (FZRAs). With UAE Corporate Tax now fully implemented, businesses must understand how UAE Free Zone Corporate Tax, VAT, transfer pricing, and Free Zone substance requirements apply to their operations.
This article outlines UAE Free Zone tax obligations and provides a structured overview to help businesses maintain compliance and protect available Free Zone tax exemptions and incentives.
Who Is in Scope: Free Zone Person and Qualifying Free Zone Person
Free Zone entities fall under defined classifications for UAE Corporate Tax purposes. Understanding these classifications helps businesses determine their Corporate Tax obligations and eligibility for Free Zone tax incentives.
A Free Zone Person (FZP) includes any company or branch incorporated, registered, or established in a UAE Free Zone. All FZPs must comply with UAE Corporate Tax laws, including Corporate Tax registration, filing, and record-keeping requirements.
Certain entities may qualify for the 0% Corporate Tax rate when classified as a Qualifying Free Zone Person (QFZP). To maintain QFZP status, companies must meet QFZP requirements, including:
- Conducting permitted activities within the Free Zone.
- Maintaining adequate UAE-based staff, premises, and management for core operations.
- Ensuring non-qualifying income remains within prescribed thresholds under UAE Corporate Tax Free Zone rules.
Meeting these conditions enables Free Zone businesses to access Free Zone tax exemptions while remaining compliant with federal Corporate Tax legislation.
Registration, Filing, and Payment Requirements
Corporate Tax registration and filing are mandatory for all Free Zone Persons. Free Zone companies must complete Corporate Tax registration within 90 days from their incorporation date through the Federal Tax Authority’s EmaraTax platform.
Note: Corporate Tax registration deadlines and penalty-waiver conditions have changed since the implementation of UAE Corporate Tax. Companies should confirm the applicable deadline based on their licence date via the FTA portal.
Once registered, Free Zone companies are required to:
- File annual Corporate Tax returns within nine months of the end of their financial year.
- Pay Corporate Tax based on the assessment of taxable income, where applicable.
- Maintain complete financial and tax records to support filings and potential Corporate Tax audits.
Meeting these obligations supports Corporate Tax compliance and reduces exposure to penalties and regulatory enforcement actions.
VAT Treatment: Designated Zones and Other Free Zones
VAT obligations for UAE Free Zone companies depend on whether the Free Zone is classified as a Designated Zone and the nature of taxable transactions under UAE VAT law. Understanding this distinction is essential for applying the correct VAT treatment for goods and services.
To comply with UAE VAT rules, Free Zone companies should:
- Confirm whether their Free Zone is listed as a Designated Zone by the Federal Tax Authority (FTA).
- Apply VAT registration, invoicing, and reporting requirements in line with FTA guidance.
Special VAT treatment applies to goods within Designated Zones, while standard UAE VAT rules apply to services and transactions in non-designated Free Zones.
Correct VAT classification reduces the risk of VAT assessments, penalties, and compliance disputes.
Transfer Pricing and Documentation
Free Zone businesses engaged in related-party transactions must comply with UAE transfer pricing rules. Proper transfer pricing documentation is required to demonstrate compliance with the arm’s-length principle under UAE Corporate Tax legislation.
Companies should ensure they:
- Prepare and retain transfer pricing documentation in accordance with UAE transfer pricing requirements.
- Submit the Transfer Pricing Disclosure Form with their Corporate Tax return where turnover exceeds AED 200 million.
- Maintain Master File and Local File documentation where required under Federal Tax Authority guidelines.
Robust transfer pricing documentation supports audit readiness and aligns with federal tax compliance standards.
Substance Requirements
Free Zone companies conducting activities classified as Relevant Activities must meet Free Zone substance requirements to maintain eligibility for tax exemptions. Substance requirements ensure that entities maintain a genuine operational presence in the UAE.
Key actions include:
- Assessing Core Income Generating Activities against Relevant Activity rules to determine substance applicability.
- Submitting economic substance notifications and reports within statutory deadlines.
- Maintaining adequate staff, operational expenditure, and decision-making functions in the UAE.
Adherence to substance requirements protects Free Zone companies from penalties and aligns with national regulatory expectations.
Record Keeping, Audits, and Penalties
Accurate record keeping underpins compliance across UAE Free Zone Corporate Tax, VAT, transfer pricing, and substance regimes. Free Zone companies must retain supporting documentation for at least seven (7) years from the end of the relevant tax period, or longer where required by specific Free Zone authorities.
Failure to meet compliance obligations may result in:
- Penalties for late Corporate Tax or VAT registration, filing, or payment.
- Increased audit scrutiny or investigations by the Federal Tax Authority.
- Licence restrictions or operational disruptions within the Free Zone.
Maintaining structured internal compliance processes helps mitigate regulatory risk and enforcement exposure.
Practical Compliance Checklist for Free Zone Companies
A disciplined and proactive compliance framework enables Free Zone companies to meet UAE Corporate Tax and regulatory obligations efficiently. As an FTA-authorised Tax Agency certified to ISO 9001, ISO 27001, and ISO 42001 standards, SimplySolved recommends the following steps:
- Confirm designation as a Qualifying Free Zone Person and verify eligibility for Free Zone tax exemptions.
- Confirm whether the Free Zone is classified as a VAT Designated Zone and identify applicable VAT obligations.
- Register for UAE Corporate Tax through the EmaraTax platform.
- Prepare transfer pricing documentation and submit required disclosures.
- Comply with Free Zone substance requirements and submit mandatory filings.
- Maintain accounting, tax, and corporate records and meet all filing and payment deadlines.
Conclusion
Free Zone companies in the UAE are subject to defined obligations under UAE Free Zone Corporate Tax, VAT, transfer pricing, and substance requirements. The QFZP regime provides the potential for a 0% Corporate Tax rate; however, maintaining this benefit requires strict adherence to QFZP requirements and ongoing compliance obligations.
Structured governance, accurate documentation, and periodic review of tax and regulatory requirements enable Free Zone companies to manage compliance risk and preserve their tax position effectively.
About SimplySolved
SimplySolved is an ISO 9001, 27001, and 42001 certified firm providing full spectrum support with in-house teams as Corporate Services Provider supporting local or foreign entities, startups, and subsidiaries entering the UAE market. From jurisdictional selection, company formation to visa processing, licensing, and compliance.
Our team ensures complete alignment with UAE commercial laws, governance frameworks, labour law and tax regulations. We operate across multiple lines of business including Company Formation, Finance & Tax (FTA Tax Agents) and HR & Payroll to offer our clients full support from planning to operational support.
Partner with SimplySolved to build a compliant and reliable foundation for your UAE business and support to manage key Finance, Tax and HR/Payroll operations.
While this guide provides high-level guidance, it is not a substitute for tax or legal advice, and we encourage you to seek advice regarding the specific matters that concern you. If you wish to speak to us, you may contact us directly.
