Shareholder and Intercompany Loans in UAE: Corporate Tax Rules Every SME Should Know
02/11/2026
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The Company's business operations may qualify for the 0% corporate tax incentive solely if it is established within a designated free zone and adheres to the following stipulated conditions: • Sufficient substance is maintained within the Free Zone; • It generates Qualifying Income as outlined in the Cabinet Decision; • It has not opted to be subject to Corporate Tax; • It complies with the UAE Transfer Pricing regulations; and • It satisfies any additional conditions as prescribed.
The introduction of Corporate Tax in the UAE has changed how businesses operating in Free Zones need to approach tax compliance. While Free Zones continue to offer important business advantages, having a Free Zone licence does not automatically mean that a company receives a 0% Corporate Tax rate.
A Free Zone company may qualify as a Qualifying Free Zone Person (QFZP) and benefit from a 0% Corporate Tax rate on Qualifying Income, provided it satisfies the conditions prescribed under UAE Corporate Tax legislation. Income that does not qualify may be subject to the standard 9% Corporate Tax rate.
Understanding QFZ eligibility in the UAE, Qualifying Income, Qualifying Activities, Excluded Activities, substance requirements and compliance obligations is therefore important for companies operating from UAE Free Zones.
A Qualifying Free Zone Person is a Free Zone Person that meets the conditions specified under the UAE Corporate Tax framework.
The Federal Tax Authority explains that a QFZP can benefit from a 0% Corporate Tax rate on Qualifying Income. However, the 0% rate does not apply automatically to every type of income earned by a Free Zone company.
In simple terms:
Free Zone company ≠ automatically 0% Corporate Tax.
The company must satisfy the applicable QFZP conditions and ensure that its income falls within the definition of Qualifying Income.
A company generally needs to satisfy the applicable requirements to obtain and maintain QFZP status.
Key considerations include:
The specific eligibility of a business depends on its legal structure, activities, transactions, customers and income sources.
Qualifying Income refers to income that meets the conditions prescribed under the UAE Corporate Tax rules for the Free Zone regime.
The classification can depend on factors such as:
Therefore, businesses should not classify all Free Zone revenue as Qualifying Income without reviewing the underlying transactions.
Qualifying Activities are activities that can generate Qualifying Income when the applicable conditions are satisfied.
The UAE Ministry of Finance has identified various activities under the Free Zone Corporate Tax framework. These include activities such as:
The detailed rules should be reviewed against the latest applicable Ministerial Decisions because the scope of qualifying activities can change. In September 2025, the Ministry of Finance announced Ministerial Decision No. 229 of 2025, replacing the earlier decision and clarifying the scope of Qualifying and Excluded Activities.
Certain activities are specifically excluded from the QFZP regime.
Income from an Excluded Activity generally does not qualify for the 0% Corporate Tax rate under the Free Zone regime.
Examples of areas that can be subject to specific exclusion rules include certain:
The treatment depends on the exact transaction and the relevant statutory conditions.
This is why a company should assess its actual business model instead of assuming that its Free Zone licence alone provides tax benefits.
The UAE Free Zone Corporate Tax regime also contains a de minimis requirement for certain non-qualifying revenue.
Under the applicable framework, non-qualifying revenue must generally not exceed the lower of:
5% of total revenue or AED 5 million.
The calculation and exclusions must be assessed carefully under the applicable rules.
For example, if a company earns revenue from both qualifying and non-qualifying activities, it should monitor the relevant non-qualifying revenue rather than simply assuming that all its profits will receive the 0% rate.
Exceeding the applicable threshold can affect the company's QFZP status.
Maintaining adequate substance is another important consideration for a company seeking QFZP status.
A business should have an appropriate level of presence and activity in the Free Zone in relation to its business and income-generating activities.
This can involve considerations such as:
The substance requirement helps ensure that the Free Zone regime is being used by businesses with genuine economic activity rather than entities with only a nominal presence.
Companies benefiting from the QFZP regime must also consider UAE transfer pricing requirements.
This is particularly relevant when the company enters into transactions with:
Transactions should be evaluated according to the applicable UAE transfer pricing rules and the arm's-length principle.
Proper documentation can also help businesses demonstrate how related-party transactions were determined and reported.
Financial records are an important part of maintaining Corporate Tax compliance.
A Free Zone company should maintain appropriate accounting records and comply with applicable requirements relating to financial statements and auditing.
Accurate accounting can help the company:
Businesses should therefore avoid treating accounting and tax compliance as separate processes.
No.
This is one of the most important points businesses should understand.
A QFZP may benefit from a 0% Corporate Tax rate on Qualifying Income, but income that does not qualify can be subject to the applicable 9% Corporate Tax rate.
The Federal Tax Authority specifically clarifies that the 0% rate applies to Qualifying Income rather than automatically applying to all income earned by a Free Zone company.
Therefore, businesses should analyse their income streams separately.
Suppose a Free Zone company earns income from an activity that meets the requirements for Qualifying Income and also earns income that does not qualify under the Free Zone regime.
The company cannot simply apply 0% Corporate Tax to its entire income.
Instead, the business needs to determine:
The actual tax calculation should be based on the UAE Corporate Tax legislation and the company's specific circumstances.
Maintaining QFZP status requires ongoing compliance.
A company that fails to satisfy the applicable conditions may lose the benefit of the Free Zone Corporate Tax regime. The consequences can extend beyond the immediate tax period.
The Ministry of Finance has explained that where the relevant conditions are not met, including the applicable de minimis requirements, the company may no longer benefit from the Free Zone regime for the prescribed period.
For this reason, businesses should conduct periodic reviews rather than checking eligibility only when preparing their annual Corporate Tax return.
A practical QFZ eligibility review can include the following steps:
Confirm whether the entity meets the definition of a Free Zone Person for Corporate Tax purposes.
Compare the company's actual activities with the current list of Qualifying and Excluded Activities.
Identify where income comes from and classify transactions according to the applicable Corporate Tax rules.
The identity and status of the counterparty can affect the treatment of certain income.
Review employees, assets, operating expenditure and core income-generating activities in the Free Zone.
Review transactions with related parties and connected persons for transfer pricing compliance.
Ensure that financial records allow qualifying and non-qualifying income to be properly identified.
Regularly monitor non-qualifying revenue to avoid unexpected consequences.
Keep contracts, invoices, accounting records, financial statements and other relevant evidence supporting the company's tax position.
QFZP eligibility should be reviewed as part of the company's regular tax compliance process.
QFZP eligibility can involve several interconnected requirements. A company may have a Free Zone licence and still need to analyse its activities, income, customers, substance and compliance position before determining whether it qualifies.
Professional assistance can help businesses:
For companies operating in UAE Free Zones, early tax planning can help reduce the risk of unexpected Corporate Tax exposure.
Young & Right provides tax and accounting support to businesses operating in the UAE.
For Free Zone companies, professional support can help with reviewing QFZP eligibility, Corporate Tax compliance, accounting records, financial statements, transfer pricing requirements and tax return preparation.
Businesses should assess their eligibility based on their actual activities and transactions rather than relying solely on their Free Zone registration.
If your company operates in a UAE Free Zone and you want to understand whether your business may qualify for the QFZP regime, Young & Right can help you review the relevant Corporate Tax requirements and compliance considerations.
Understand the key conditions a company must meet to qualify for the UAE Corporate Tax benefits available to Qualifying Free Zone Persons.
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