UAE: the 9% corporate tax clarified for free zones

The United Arab Emirates has introduced a tax on corporate profits, in force for financial years beginning on or after June 2023. It applies to the whole territory, free zones included, and ends a general exemption that had made the country's reputation.

The rate is 9%¹ above a taxable profit threshold of AED 375,000², or about about €95,000³. Below that, the applicable rate is zero.

This threshold is often misunderstood. It is not an allowance reserved for small businesses but an untaxed first band, which benefits every company within the scope of the tax.

Individuals, for their part, are not taxed on their income: the applicable rate remains 0%⁴. A resident company director therefore receives net whatever the company distributes, once the company's tax has been paid.

A company established in a free zone can keep a zero rate on its qualifying income only. The concept is defined by Emirati regulations and, as a matter of principle, excludes income from activities with the UAE domestic market.

Three conditions frame the regime. The company must maintain adequate substance in the free zone — premises, staff, actual expenditure. It must derive its income from qualifying activities. And it must not exceed a de minimis threshold for non-qualifying income.

Exceeding this threshold does not trigger a partial adjustment: it causes the loss of the regime for that financial year and the following ones, which is a heavy penalty. This is the point that must govern how the business is organised.

Activities aimed at the local market, for their part, remain subject to the 9%¹ rate above the threshold. A company that invoices Emirati clients outside the free zone therefore leaves the regime for that share of its business.

We do not publish the list of qualifying activities, the de minimis threshold for non-qualifying income or the precise substance criteria: they are set out in ministerial decisions whose current version we have not been able to verify. They must be established with an Emirati adviser before any structuring.

1. Map where income comes from: clients outside the Emirates, clients in a free zone, clients in the domestic market.
2. Document the actual substance of the structure: office, employees, expenditure incurred locally.
3. Check that non-qualifying income stays below the de minimis threshold, since the loss of the regime is not partial.
4. Register with the Federal Tax Authority and file the annual return: the obligation applies even when the tax due is zero.
5. For a French company director, deal separately with the question of your own residency: presence of from 183 days⁵ over twelve months gives rise to Emirati tax residency, but a certificate is still required to rely on the tax treaty.

The fourth point is the one newly formed companies most often overlook: registration and filing are mandatory regardless of the amount due, and failure to comply is penalised.

The regime is recent and its doctrine is being written as administrative decisions are issued. Successive clarifications have covered the definition of qualifying income, the treatment of permanent establishments and groups: this process is not over.

A domestic minimum top-up tax aimed at large multinational groups has also been introduced, which marks the end of the absolute character of the Emirati exemption. Small businesses are not affected, but the overall direction is clear.

For a French entrepreneur, the practical conclusion fits in one sentence: the zero rate in free zones still exists, it is no longer automatic, and it has to be earned through facts — premises, staff, clientele — that the authorities can audit.

The argument of an Emirati company managed from France remains as fragile as before. A structure whose effective management remains in France is taxable there, whatever its place of registration and whichever free zone is chosen.