Most guides talk about how Free Zone companies in the UAE can qualify for 0% Corporate Tax. But there’s another side of the story — when it may actually be smarter, safer, and more profitable in the long run to be in the standard 9% UAE Corporate Tax regime.
This article explains the key differences, why paying 9% sometimes makes sense for expatriates and international business owners, and how to structure your company for the most tax-efficient outcome.
1. The Two Regimes at a Glance: 0% vs 9%
- Standard Corporate Tax (CT):
0% on taxable income up to AED 375,000, then 9% above that threshold. This applies to all mainland companies and Free Zone companies that either elect into the standard regime or fail to qualify as a QFZP. - Free Zone 0% Regime:
Available only to a Qualifying Free Zone Person (QFZP), but limited strictly to Qualifying Income. Any non-qualifying income is taxed at 9% — and unlike the standard CT regime, that slice does not benefit from the AED 375,000 0% band.
2. Who Must Pay 9% UAE Corporate Tax?
You fall under the 9% regime if:
- You are a mainland company.
- You are a Free Zone company that elects into standard CT.
- You are a Free Zone company that fails QFZP conditions — e.g. insufficient substance, breaching the de minimis threshold, or failing to maintain audited financials and transfer pricing compliance.
📌 If you elect or fail, you lose QFZP status for that tax period and the next four years.
3. Why Paying 9% Can Be Better Than 0%
This may sound counterintuitive, but in many situations, paying 9% Corporate Tax in the UAE is actually smarter than targeting 0%. Here’s why:
- Home-country rules (dividends & CFC):
Many countries impose extra taxes on dividends from “low-tax” jurisdictions or apply Controlled Foreign Company (CFC) rules if profits weren’t subject to a minimum tax. The subject-to-tax test often looks for 10–15%. Paying 9% in the UAE helps pass that test, avoiding punitive home-country taxation. - Simpler operations:
No need to constantly check whether revenue qualifies as “Qualifying Income” or whether you’ve breached the de minimis threshold. - Access to reliefs unavailable in Free Zones:
A QFZP cannot benefit from Small Business Relief, group reliefs, restructuring reliefs, loss transfers, or tax grouping. All these are available under standard CT. - Better treaty outcomes:
Many double tax treaties require evidence of real taxation. The UAE’s participation exemption (for qualifying dividends and capital gains) and the subject-to-tax test in treaties often work better with a clean 9% tax posture.
4. How Free Zone Companies Can Intentionally Enter the 9% Regime
Free Zone entities have three choices:
- Elect into standard CT. A clear path, but it comes with a 4-year lock-out from Free Zone benefits.
- Fail QFZP conditions. Not recommended, as it risks compliance penalties.
- Operate as a mainland company (incorporation or conversion).
Either way, once in, your profits are taxed under the standard 9% UAE CT regime.
5. The Tax Base & Reliefs at 9%
- Tax base: Calculated from accounting profit, adjusted per the UAE Corporate Tax Law (exempt income, allowable and disallowed deductions, etc.).
- Participation exemption: Dividends/capital gains from qualifying shareholdings (≥5% ownership, ≥12-month hold or intention, and subject-to-tax at ≥9%) can be exempt.
- Foreign Tax Credit: Credit foreign taxes paid abroad against UAE CT, capped at the UAE liability on that income.
- Small Business Relief (SBR): Available if revenue ≤ AED 3m for periods ending before 31 Dec 2026. But if you want to prove “real taxation” for treaty purposes, electing SBR may not help.
6. The Free Zone De Minimis Trap
Free Zone companies trying to stay at 0% must watch the de minimis thresholds: 5% of total revenue or AED 5m, whichever is lower, for non-qualifying mainland transactions.
If you breach the limit, you lose QFZP status for that year plus the next four years.
👉 If you know you’ll breach, electing into 9% upfront is cleaner and safer.
7. Compliance Checklist for the 9% Path
To stay compliant under the 9% UAE Corporate Tax regime, companies must:
- Register for Corporate Tax and obtain a TRN.
- Maintain IFRS-compliant accounts, with audited financial statements where required.
- Comply with Transfer Pricing (TP) — maintain master and local files, and file TP disclosure forms if thresholds apply.
- File the annual CT return within 9 months after year-end.
Failure to register, file, or comply with TP can lead to FTA penalties.
8. Worked Example: UAE Corporate Tax at 9%
- Profit before tax: AED 2,000,000
- Tax calculation:
- 0% on first AED 375,000 = AED 0
- 9% on AED 1,625,000 = AED 146,250
- 0% on first AED 375,000 = AED 0
Total = AED 146,250 (before exemptions/credits).
📌 If this company instead tried to operate as a QFZP but earned non-qualifying income, that non-qualifying slice would be taxed at 9% without the AED 375k 0% band — a nasty surprise that often makes full 9% simpler and cheaper overall.
9. Home-Country Planning: Why a Little UAE Tax Saves a Lot
Global expats and international owners often find that paying some tax in the UAE helps avoid a much larger tax bill at home.
A transparent 9% UAE tax footprint can:
- Satisfy “subject-to-tax” requirements in double tax treaties.
- Simplify foreign tax credit claims.
- Avoid classification as a “low-tax jurisdiction” triggering CFC inclusions.
👉 Always map your UAE tax planning alongside your home-country rules.
10. Decision Framework: 0% vs 9%
- Need broad mainland trading + simplicity? ✅ Go with 9%.
- Operating mainly Free Zone-to-Free Zone or export? ✅ QFZP 0% may work if you meet all conditions.
- Need treaty proof of taxation for home-country relief? ✅ Paying 9% in the UAE usually gives stronger results.
Final Thoughts
For many international entrepreneurs, zero is not always the hero. A clean 9% UAE Corporate Tax footprint can reduce global tax costs, strengthen treaty outcomes, and simplify operations.
At Exval, we help expat-owned companies structure for the most tax-efficient outcome, whether through the 0% Free Zone regime or the standard 9% UAE Corporate Tax regime.
📌 For official rules, always consult the UAE Federal Tax Authority (FTA).
📞 For tailored guidance, book a free call with the Exval team.