Corporate Tax Exemptions In The UAE: Eligibility and Conditions

When the UAE introduced corporate tax in 2023, many founders had the same question: Will my business actually pay it?

The answer, in many cases, is not immediately, and sometimes not at all. The UAE Corporate Tax framework includes a 0% rate on taxable income up to AED 375,000 and 9% above that threshold, Small Business Relief for companies with revenue up to AED 3 million, and a 0% regime for Qualifying Free Zone Persons who meet the required conditions.

The opportunity is significant, but it is not automatic.

Corporate tax exemptions in the UAE depend on eligibility, structure, and ongoing compliance. Businesses must register with the Federal Tax Authority, maintain proper accounting records, file returns, and ensure their activities and income remain within qualifying limits. For founders, the real challenge is protecting the zero-tax position as the business grows. Operating within a Qualifying Free Zone environment such as Meydan Free Zone helps businesses access the 0% framework where eligible, while managing corporate tax registration, reporting, and ongoing compliance through integrated solutions like mAccounting under mPlus.

This guide explains the key corporate tax exemptions, eligibility criteria, and conditions businesses must maintain.

Understanding How Corporate Tax Applies in the UAE

The UAE corporate tax system is designed as a tiered, profit-based framework, meaning tax is calculated on taxable income, not revenue.

Corporate tax rates:

• 0% on taxable income up to AED 375,000
• 9% on taxable income above AED 375,000

This threshold was introduced to support startups and SMEs, which account for more than 94% of businesses in the UAE. For many early-stage companies, this effectively creates a built-in relief period while the business grows.

Key points founders should understand:

• Tax applies to profits after allowable expenses and deductions
• A high-revenue business may still fall within the 0% band if margins are low or profits are reinvested
• The 9% rate applies only to the portion of income above AED 375,000

Beyond the standard thresholds, some businesses may qualify for additional relief or special treatment, including:

• Small Business Relief (for revenue up to AED 3 million)
• 0% Corporate Tax for Qualifying Free Zone Persons
• Full exemption for certain entities such as government bodies, approved public benefit organisations, and qualifying investment funds

Small Business Relief: The Most Common Corporate Tax Exemption

For many founders, Small Business Relief is the most relevant way to remain in a 0% corporate tax position during the early stages of growth.

Businesses may qualify if:

• Annual revenue does not exceed AED 3 million
• The business is a UAE tax resident
• The relief is elected in the CT return

If eligible, the business is treated as having no taxable income, meaning no corporate tax is payable for that period.

This relief is currently available for tax periods ending on or before 31 December 2026 (subject to regulatory updates).

What founders should know:

• The AED 3 million threshold is based on revenue, not profit
• The relief is not automatic; it must be claimed when filing
• Businesses must still register for corporate tax, maintain accounts, and file returns

Free Zone Corporate Tax Exemption: The 0% Opportunity

Free zone businesses can benefit from 0% corporate tax if they qualify as a Qualifying Free Zone Person (QFZP).

To maintain the 0% rate, the business must:

• Earn qualifying income
• Maintain adequate substance in the UAE
• Comply with transfer pricing rules
• Prepare audited financial statements
• Not elect to be subject to the standard corporate tax regime

Qualifying income generally includes:

• Transactions with other free zone businesses
• International trade and export activities
• Certain distribution and services provided outside the UAE mainland

Free zone companies may still earn some mainland or other non-qualifying income, but this must remain within the de minimis threshold: the lower of 5% of total revenue or AED 5 million. Exceeding this limit may result in the business becoming subject to the 9% corporate tax rate.

Here’s an example:

If a free zone company generates AED 8 million in total revenue, 5% equals AED 400,000. In this case, non-qualifying income must stay below AED 400,000 (since it is lower than AED 5 million). If mainland or other non-qualifying revenue exceeds this amount, the business may lose its 0% corporate tax status.

This is why many free zone businesses closely monitor their mainland revenue exposure; the risk is not the activity itself, but crossing the threshold unintentionally.

Exempt Persons Under UAE Corporate Tax Law

Some entities are fully exempt from corporate tax due to their public or social function.

These include:

• Government entities
• Government-controlled entities
• Extractive businesses (oil, gas, natural resources) subject to Emirate-level taxation
• Non-extractive natural resource businesses (under specific conditions)
• Public benefit entities (approved charities and foundations)
• Qualifying public pension or social security funds
• Qualifying investment funds

These exemptions apply only after formal recognition by the authorities where required.

Foreign Businesses and Corporate Tax: When Does It Apply?

A foreign company is not automatically subject to UAE corporate tax. Many international founders assume that selling into the UAE or working with UAE clients creates a tax obligation. In reality, the trigger is presence, not exposure.

Corporate tax applies only if the foreign business has:

• A Permanent Establishment (PE) in the UAE (such as an office, branch, warehouse, or a dependent agent with authority to conclude contracts), or
• UAE-sourced income that falls within the scope of the corporate tax rules

If a foreign company operates remotely, has no fixed place of business in the UAE, and does not create a taxable presence, it may remain outside the UAE corporate tax net.

Many international businesses begin by serving UAE clients remotely, with corporate tax exposure arising only when they establish a local presence, such as hiring staff, opening an office, or setting up a UAE entity.

Participation Exemption for Dividends and Capital Gains

The UAE corporate tax framework also recognises that many businesses don’t just trade; they invest, hold subsidiaries, or build group structures.

Under the Participation Exemption, certain investment income can remain outside the corporate tax net. This includes:

• Dividends received from a qualifying company ‍
• Capital gains from selling shares in a subsidiary or investment
• Other ownership-related returns, such as liquidation proceeds, where conditions are met

In most cases, the UAE company must hold at least a 5% ownership stake (or have an acquisition cost exceeding AED 4 million) and meet minimum holding period and underlying taxation or substance requirements.

For founders building regional or global structures, this is what makes the UAE a strong holding jurisdiction. Profits can move up from operating companies, or exits can be realised, without creating additional corporate tax exposure, as long as the structure is set up correctly from the start.

Conditions Founders Must Maintain to Keep Their Exemption

This is where many founders misunderstand the system.

Corporate tax exemptions require ongoing compliance, including:

• Maintaining proper accounting records
• Filing corporate tax returns (even if tax payable is zero)
• Meeting substance and activity requirements
• Monitoring revenue thresholds
• Following transfer pricing rules where applicable

In the UAE, relief does not mean no compliance.

When Businesses Accidentally Lose Their Corporate Tax Exemption

Common risk areas include:

• Free zone companies generating mainland revenue beyond allowed limits
• Revenue exceeding AED 3 million without planning for Small Business Relief exit
• Mixing personal and business finances
• Not preparing audited financials where required
• Missing corporate tax registration or filing deadlines

How Meydan Free Zone Helps Businesses Stay Corporate Tax Ready

For most founders, the risk is not the tax rate. It is losing eligibility because the structure, records, or filings were not handled correctly.

Businesses established in Meydan Free Zone operate within a Qualifying Free Zone jurisdiction, allowing them to access the 0% corporate tax framework where QFZP conditions are met. Beyond the jurisdiction itself, the focus is on ongoing compliance.

Through the mPlus ecosystem, businesses can manage:

• Corporate tax registration and return filing with the Federal Tax Authority (FTA)
• Bookkeeping and financial records through mAccounting
• Ongoing compliance monitoring and reporting
• License, business activity, and document updates as the business evolves

This matters because corporate tax eligibility depends on consistency: accurate records, aligned business activities, and timely filings. When these are managed within the operating environment rather than separately, the risk of falling out of the 0% position is significantly lower.

In Conclusion: Exemption is a Structure, Not a Status

The UAE corporate tax system is designed to support growth, and many businesses operate at 0% through the standard threshold, Small Business Relief, or the Qualifying Free Zone framework. But exemptions are not automatic. They depend on the right structure, the right revenue mix, and consistent compliance.

For founders, the real question is whether the business is set up to protect its eligibility as it grows. Choosing the right jurisdiction and maintaining accurate records, timely filings, and aligned activities are what keep a company within the zero-tax position.

Operating within a qualifying environment such as Meydan Free Zone helps businesses do this from the start, with integrated support through mPlus and mAccounting to manage registration, reporting, and ongoing compliance, so the 0% advantage is maintained as the business scales.