Many entrepreneurs in the UAE choose to set up their business in free zones because of the perceived tax advantages. However, there’s a growing misconception that all free zone companies are automatically exempt from paying corporate tax in the UAE. The truth is far more complex—and falling into these common traps could cost your business both money and compliance.
At Forever Rich Accounting & Tax Services, we help businesses navigate the evolving UAE corporate tax regulations to stay compliant and optimize their tax strategy.
Here are six major corporate tax myths about free zone companies you should avoid:
❌ Myth 1: A Free Zone License Means Full Corporate Tax Exemption
✅ Truth: All free zone businesses in the UAE are subject to corporate tax—regardless of their business type. Only companies classified as Qualifying Free Zone Persons earning Qualifying Income can benefit from the 0% tax rate. To qualify, they must meet seven strict conditions set by the Federal Tax Authority (FTA).
Learn more about eligibility and tax planning at Forever Rich UAE – Corporate Tax Advisory.
❌ Myth 2: Free Zone Companies Don’t Need to Register or File Corporate Tax
✅ Truth: All UAE free zone companies must register for corporate tax and submit an annual corporate tax return. Tax registration must be completed within the FTA’s deadlines, and the return must be filed within 9 months of the financial year-end.
Don’t risk late fees or penalties—get help from our tax experts today.
❌ Myth 3: All Trading Companies in Free Zones Automatically Get the 0% Tax Rate
✅ Truth: The 0% UAE corporate tax rate is not applied automatically. Companies must elect this status and demonstrate compliance with the FTA’s conditions. If you don’t opt in, your business will be taxed at the standard 9% rate.
Forever Rich UAE can help assess your company’s eligibility and guide you through the application process.
❌ Myth 4: Free Zone and Mainland Companies Can Form a Tax Group to Offset Losses
✅ Truth: A free zone entity electing the 0% corporate tax rate cannot be part of a tax group with a mainland company. However, if the free zone company opts out of the 0% benefit and pays the 9% tax, it may form a group with mainland companies—provided there’s 75% common ownership.
To explore strategic tax grouping, consult our certified UAE tax advisors.
❌ Myth 5: Small Businesses Don’t Need Audited Financial Statements
✅ Truth: If your free zone business chooses to apply the 0% corporate tax rate, you are required to submit audited financial statements, no matter your annual revenue.
Our team at Forever Rich Accounting & Tax Services can connect you with qualified auditors and ensure you meet all tax documentation requirements.
❌ Myth 6: Services to Mainland Clients Are Tax-Free for Free Zone Companies
✅ Truth: Providing professional services from a free zone to mainland UAE clients is considered non-qualifying activity, and the resulting income is taxed at 9%.
This is one of the most misunderstood aspects of the UAE corporate tax system, and misclassifying such income can lead to penalties.
Avoid mistakes—speak with our corporate tax experts to ensure proper classification and compliance.
✅ Stay Compliant. Stay Profitable.
While free zone companies can enjoy certain tax incentives, corporate tax compliance in the UAE is not automatic—it requires active planning, proper registration, accurate reporting, and sometimes, strategic decision-making.
At Forever Rich UAE, we provide full-service corporate tax consultancy, from tax registration and return filing to eligibility assessment and audit coordination. Whether you’re setting up a business or reviewing your tax obligations, we’re here to help you stay compliant and protect your profits.
