How to Qualify for 0% Corporate Tax Rate in the UAE

Looking for the next big business move? The UAE might already be three steps ahead.

Its tax-friendly environment, strategic location, and business infrastructure make it a powerful magnet for entrepreneurs, investors, and multinational corporations.

But since the introduction of the UAE corporate tax regime in June 2023, there’s been a lot of talk around the 0% corporate tax rate. What does it mean? Who qualifies? And how can your business legally benefit from it?

Let’s break it down clearly!

What is the UAE Corporate Tax?

Corporate tax became part of the UAE’s federal framework from June 1, 2023. This was a major shift in policy, as the UAE was previously considered a “no-tax” jurisdiction for most businesses. Under the new regime:

• Businesses pay 0% corporate tax on income up to AED 375,000.
• Income beyond AED 375,000 is taxed at 9%.

Certain entities and income streams may qualify for a 0% rate regardless of income, depending on their classification and activities.

So, 0% tax is still very much a possibility, but not for everyone.

Who Really Qualifies for 0% Corporate Tax in the UAE?

To benefit from the 0% rate, your business must fall into specific categories defined by the UAE Federal Tax Authority (FTA). Let’s explore the main ones:

1. Free Zone Persons

Many businesses set up in the UAE free zones precisely to enjoy tax benefits. The UAE’s updated corporate tax law permits a 0% rate on qualifying income for Free Zone businesses that meet the qualifying criteria.

To qualify, the entity must:

• Be a legal entity incorporated in a UAE free zone.
• Maintain adequate substance in the UAE (i.e., conduct core income-generating activities within the free zone).
• Derive qualifying income (e.g., trading with other free zone entities or with foreign clients).
• Not elect to be subject to corporate tax.
• Comply with transfer pricing rules and documentation.

However, here’s the catch: if a free zone company generates income from the mainland, that portion is typically taxed at 9%. So to maintain the 0% rate, your income sources matter.

2. Startups and Small Businesses

The UAE has launched a Small Business Relief program. It applies to resident businesses with annual revenue under AED 3 million. If you qualify, you are treated as having no taxable income and enjoy the 0% rate.

This relief is available for tax periods beginning June 1, 2023, and ending December 31, 2026. However, it’s available only for UAE-resident entities, not foreign branches.

Important Note: Businesses must elect for SBR status each year, and multinationals and some other categories may be excluded from SBR.

3. Natural Resource Extraction

Businesses in the oil, gas, and mining sectors are exempt from federal corporate tax because they fall under emirate-level taxation. This sector is carved out of the federal tax regime entirely and remains subject to emirate-specific taxation.

This is a niche category, but it's a reminder that not all industries are treated the same.

4. Qualifying Investment Funds and Government Entities

Entities such as investment funds, nonprofit groups, government-controlled organizations, and pension funds may be eligible for a 0% tax rate. The key is proving their status and getting the relevant approvals from the FTA.

Again, these are more specialized cases but are worth noting for those operating in finance or nonprofit spaces.

Key Conditions You Must Meet

If you're eyeing that 0% rate, it’s not just about location or income. You need to get the details right.

Here’s what matters most:

• Substance: You must have real operations in the UAE, which include office space, employees, and business activity.
• Compliance: All businesses, whether taxed or exempt, must register for corporate tax and file returns annually.
• Recordkeeping: Keep detailed financial records and ensure you meet transfer pricing obligations.
• Segregation of Income: If you're a free zone entity with both qualifying and non-qualifying income, you must maintain separate accounts for each.

What You Should Avoid

Don’t assume you're tax-free because you're in a free zone or under a certain revenue limit. The FTA is watching closely, and misclassification or non-compliance can lead to penalties.

Also, don’t try to game the system by setting up shell companies or dummy structures. The UAE has committed to international transparency standards (like OECD's BEPS rules), and the tax system is backed by robust enforcement.

The Bigger Picture

The UAE’s 0% corporate tax is an incentive, not a backdoor workaround. It’s designed to attract the right kind of businesses, those that bring value, create jobs, and build the local economy.

If your company operates legitimately, stays compliant, and keeps its records clean, you can still enjoy world-class tax advantages in the UAE.

But don’t go it alone. Talk to a tax advisor or legal consultant with UAE expertise. The rules may look simple, but the fine print can get complex fast, especially if you have international transactions or multiple business activities.

Is Your UAE Business Missing Out on the 0% Tax Advantage?

Understanding the UAE’s tax rules can be overwhelming, especially when every detail matters. Whether you're just starting out or already scaling, knowing if you qualify for the 0% rate can make a big difference.

At 10xM, we break it down for you. Our experts assess your eligibility, guide you through setup and compliance, and help you align tax strategy with business growth.

Get expert clarity and unlock the tax benefits your business deserves. Book your free consultation today.