Exemptions & Special Cases in UAE Corporate Tax

By Kitaab on June 19, 2025

Who Qualifies for Corporate Tax Exemptions in the UAE? While most businesses in the UAE are subject to corporate tax, certain entities and types of income are exempt to encourage investment and public benefit activities. Here’s who qualifies: Exempt Entities & Income Types:

Individuals earning income from employment or personal investments are not subject to corporate tax.
Dividends and capital gains earned from qualifying shareholdings are typically exempt.
Qualifying investment funds and public benefit entities registered in the UAE may be exempt.
Extractive businesses (like oil and gas) and upstream hydrocarbon activities continue to follow specific tax regimes outside corporate tax law.
Certain government entities and public institutions are exempt.

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Special Treatment for Free Zone Businesses

Free zones remain a cornerstone of the UAE’s economic strategy, and many free zone companies continue to enjoy tax incentives, including:

0% corporate tax rate on qualifying income for a set period, subject to compliance with substance and economic activity requirements.
Free zone businesses must ensure they conduct genuine business activities within the zone to maintain their tax status.
If free zone companies earn income from mainland UAE or non-qualifying activities, that income may be subject to the standard corporate tax rates.
Non-qualifying revenue must not exceed 5% of total revenue or AED 5,000,000 to meet the qualifying threshold for specific tax treatments or exemptions.

What Counts as Qualifying Income for Free Zone Companies?

Qualifying income generally includes:

Income generated from clients outside the UAE
Services provided to other free zone companies or overseas customers
Certain export activities

What Happens if Free Zone Businesses Don’t Comply?

Non-compliance with substance or economic activity rules may lead to losing the 0% tax benefit and being taxed at the standard 9% rate on all profits. If CT is missed for 4 cycles, they will not be able to regain that. Companies can choose to forgo QFZP advantages and enter the standard tax regime. However, this comes with a four-year period where they can’t reclaim QFZP tax benefits.

Disclaimer: Content posted is for informational & knowledge sharing purposes only and is not intended to be a substitute for professional advice related to tax, finance, legal, compliance, or accounting. No warranty whatsoever is made in this regard, and it is not intended to provide and should not be relied on for tax/ finance/ legal/ compliance or accounting advice. The content posted is subject to future amendments / changes / clarifications in the regulation by the authorities.

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