Are UAE Residents Subject to Corporate Tax in 2025? Understanding Qualified Free Zone
December 22, 2022
September 24, 2025
June 19, 2025
September 24, 2025
Topic Summary
1. Introduction to UAE Corporate Tax in 2025
From 1 June 2023, the UAE introduced a federal corporate tax at a standard rate of 9% on taxable profits exceeding AED 375,000. This policy applies to all business activities conducted by UAE residents, signalling a significant shift in the country’s tax landscape. Understanding your corporate tax obligations in 2025 is crucial for compliance and strategic planning.
2. Tax Obligations for UAE Residents
UAE residents operating businesses are generally subject to corporate tax on profits derived from business activities within the UAE. However, the tax applies predominantly to mainland companies and excludes certain categories, such as personal income and natural resource extraction industries, which may be taxed differently. Comprehensive filing and payment procedures must be adhered to in accordance with the Federal Tax Authority’s guidelines.
3. Qualified Free Zones (QFZs): Definition and Benefits
Qualified Free Zones, such as Meydan Free Zone (MFZ), offer unique incentives under the new tax regime. Companies established within these zones can benefit from up to 100% corporate tax exemption on qualifying income, provided they meet specified criteria. This status aims to foster economic growth and attract foreign investment by preserving the competitive tax advantages traditionally associated with free zones.
4. Criteria to Qualify for Free Zone Tax Exemptions
To benefit from the QFZ tax exemption, businesses must derive at least 50% of their qualifying income from activities conducted within the free zone and must maintain adequate substance within the zone. Compliance with regulatory requirements, including proper accounting records and timely tax filings, is mandatory to retain exemption eligibility.
5. Strategies for Tax Efficiency within QFZs
Operating in a Qualified Free Zone like MFZ can significantly enhance tax efficiency for UAE residents. Businesses should engage in meticulous tax planning, ensuring their activities align with QFZ standards.
If you are running a business in 2025, understanding your obligations under the UAE corporate tax rate is essential, especially if you operate within a free zone like Meydan Free Zone (MFZ).
This article outlines the current tax rules, explains who qualifies for exemptions, and highlights how Qualified Free Zones (QFZs) like MFZ can help you remain tax efficient under the new corporate tax regime.
Overview of the UAE Corporate Tax Rate in 2025
As of 2025, the UAE corporate tax rate is set at 9% for business profits exceeding AED 375,000.
This tax applies to both UAE mainland companies and qualifying entities in free zones if certain conditions are not met.
The objective behind the tax is to align the UAE with global standards while still maintaining an attractive environment for investment and entrepreneurship.
Corporate Tax for UAE Residents
Corporate tax for UAE residents applies to companies operating inside and outside of free zones, unless exempted. It includes:
- UAE-registered businesses
- Foreign entities with a permanent establishment in the UAE
- Individuals conducting licensed commercial activities
However, UAE corporate tax for small businesses may be deferred or reduced under specific conditions, especially if revenue stays below certain thresholds.
Always verify the most recent Federal Tax Authority (FTA) guidelines.
Qualified Free Zone and Why It Matters
A Qualified Free Zone (QFZ) is a free zone that meets the criteria set by the UAE Ministry of Finance, allowing companies within it to enjoy a 0% corporate tax rate on qualifying income.
To remain compliant as a QFZ entity, your business must:
- Earn only qualifying income (from outside the UAE or other QFZs)
- Avoid non-qualifying income (such as mainland sales without proper structuring)
- Maintain adequate economic substance (office space, staff, operations)
- File tax returns and maintain audited records
- Be registered with the FTA, even if no tax is due
Meydan Free Zone is a Qualified Free Zone, meaning businesses operating here and meeting these conditions can remain eligible for 0% corporate tax.
Understanding Free Zone Corporate Tax in the UAE
The free zone corporate tax UAE businesses face is based on the type of income they earn.
Businesses in a QFZ can benefit from a 0% rate on qualifying income, but will be taxed at 9% on non-qualifying revenue.
Examples of qualifying income include:
- Export services
- Free zone-to-free zone transactions
- Foreign-sourced income
Non-qualifying income typically includes:
- Mainland UAE sales
- Banking and certain real estate income
- Passive income without substance
Corporate Tax Exemptions in the UAE
Several UAE corporate tax exemptions exist, depending on entity type and business activity:
- Income below AED 375,000
- Government and government-controlled entities
- Qualifying free zone entities with proper substance
- Charities and public benefit organisations
- Pension funds and investment funds (under FTA approval)
These exemptions reduce tax exposure for qualifying businesses while encouraging foreign direct investment and innovation.
Corporate Tax Compliance for Free Zone Businesses
Even if your tax rate is 0%, UAE corporate tax compliance is mandatory.
Every free zone entity must:
- Register for corporate tax through the Federal Tax Authority
- Maintain proper accounting records
- Submit annual tax returns
- Meet substance requirements under economic substance regulations (ESR)
Meydan Free Zone supports you through every step of this compliance journey, from tax registration to ongoing advisory.
Key UAE Corporate Tax Regulations to Know
Some of the latest UAE corporate tax regulations in effect for 2025 include:
- Free zone businesses must differentiate qualifying and non-qualifying income
- Failure to meet QFZ criteria results in taxation on total profits at 9%
- Small business relief applies if annual revenue remains under an official threshold
- Transfer pricing rules apply to related-party transactions
Regular consultation with tax experts is recommended to stay compliant and avoid penalties.
FAQ’s
1. What is the UAE corporate tax rate in 2025?
The standard rate is 9% on annual business profits above AED 375,000.
2. Is Meydan Free Zone a Qualified Free Zone?
Yes. Meydan Free Zone is recognised as a Qualified Free Zone. Businesses that meet the required conditions can benefit from a 0% tax rate.
3. Who needs to register for corporate tax in the UAE?
All businesses, including those with 0% payable tax, must register with the Federal Tax Authority.
4. What is qualifying income for free zone corporate tax purposes?
It includes foreign income, free zone-to-free zone transactions, and other non-mainland revenue, subject to guidelines.
5. Are UAE residents required to pay corporate tax?
If they operate a registered business, yes. Corporate tax for UAE residents applies based on the company’s profits and structure.
6. Can small businesses benefit from tax relief?
Yes. UAE corporate tax for small businesses may be reduced if annual revenue is below the FTA’s qualifying threshold.
7. What happens if I earn non-qualifying income in a free zone?
That income will be taxed at the standard 9% rate, unless you restructure operations to comply.
8. Do I need to file taxes even at 0%?
Yes. Filing is mandatory to prove QFZ eligibility and demonstrate compliance.
9. What is economic substance and why is it important?
It refers to having real operations, employees, and office presence. It is required to maintain tax benefits in free zones.
10. Can Meydan Free Zone help with corporate tax registration?
Yes. Meydan Free Zone assists with registration, filings, and compliance tracking to ensure your business stays protected.
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