UAE Corporate Tax: Busting 11 Myths Around Free Zone Businesses
When the UAE introduced Corporate Tax, many free zone businesses assumed they were automatically in the clear.
However, multiple misconceptions have emerged — and believing them could lead to costly mistakes.
At Ninjaz, we’re here to set the record straight. Let’s bust the 11 most common myths about UAE Corporate Tax for free zone companies:
Myth 1: Free zone companies are automatically exempt from corporate tax.
Fact: Holding a free zone license does not guarantee tax exemption. To benefit from the 0% corporate tax rate, your company must qualify as a ‘Qualified Free Zone Person’, earn ‘Qualifying Income’, and meet six strict conditions set by the Federal Tax Authority (FTA).
Myth 2: Free zone companies don’t need to register or file tax returns.
Fact: All free zone entities must register for corporate tax and file annual tax returns, even if they expect a 0% rate. Returns must be filed within 9 months after the end of the financial year.
Myth 3: Being in a designated free zone automatically means 0% corporate tax.
Fact: Zero tax is not automatic. You must actively opt for the 0% regime through the FTA’s corporate tax portal and ensure your business activities and structure meet the eligibility requirements.
Myth 4: Free zone and mainland companies under same ownership can form a tax group.
Fact: Only free zone companies that do not opt for the 0% regime can form a corporate tax group with a mainland company. If you’re benefiting from 0% tax, you cannot offset profits and losses between free zone and mainland entities.
Myth 5: Related-party transactions don't need arm’s length compliance at 0% tax.
Fact: To maintain 0% corporate tax eligibility, your free zone entity must strictly follow the Arm’s Length Principle in related-party and connected-person transactions — and maintain proper documentation.
Myth 6: If turnover is below AED 50 million, no audit is needed.
Fact: If you want to claim the 0% tax benefit, an audited financial statement is mandatory — no matter your revenue size. The name of your auditor must also be provided in your corporate tax return.
Myth 7: Rental income from free zone property is always exempt.
Fact: Rental income is zero-rated only if:
- The property is commercial, and
- The tenant is another free zone entity.
Otherwise, the rental income may be taxed at 9%, depending on the tenant and property type.
Myth 8: Consolidated financials under IFRS 10 are enough for tax filing.
Fact: Separate consolidated statements may be required for UAE-resident entities for tax reporting purposes. Unless your entities are registered as a Corporate Tax Group, each license will need to file its own tax return.
Myth 9: Withholding tax paid abroad is a deductible business expense.
Fact: Withholding tax is a direct tax, not a business expense. It cannot be deducted from your UAE corporate tax calculations.
Myth 10: Being part of a VAT group automatically means CT group filing.
Fact: Corporate Tax grouping is separate from VAT grouping. You must apply specifically to form a Corporate Tax Group — it is not automatic like VAT.
Myth 11: Free zone consultancy services to mainland clients are exempt.
Fact: Providing professional services to mainland UAE clients is considered a non-qualifying activity and is taxed at 9%. Such income must also be included in the de minimis calculation affecting your 0% regime eligibility.
Final Thoughts
The UAE’s Corporate Tax framework is detailed — and so are the rules around free zone businesses.
Free zone companies must actively opt into the 0% regime, comply fully with conditions, and file on time to stay compliant and benefit from tax advantages.
At Ninjaz, we help businesses like yours navigate these complex rules with confidence. Whether you need help registering, filing, or structuring your operations for compliance, we’re here to support you.
