In this guide
Is Dubai Still Tax-Free? The Short Answer
No — and yes. Since June 2023, the UAE has a federal corporate tax of 9% on business profits exceeding AED 375,000 (approximately $102,000). This applies to mainland companies and to free zone companies that don't qualify for the 0% rate.
However, personal income tax remains at 0% for all UAE residents. And free zone companies can still achieve an effective 0% corporate tax rate on "qualifying income" if they meet specific conditions.
The reality is more nuanced than either "Dubai is tax-free" or "Dubai now has tax." Let's break it down.
How the UAE Corporate Tax Works
The UAE corporate tax applies to all businesses operating in the UAE, with the following rates.
Standard Rates
0% on the first AED 375,000 (~$102,000) of taxable profit 9% on profits above AED 375,000
This means every business in the UAE gets a built-in AED 375,000 exemption. A company making AED 500,000 in profit pays 9% only on the AED 125,000 above the threshold — approximately AED 11,250 ($3,060).
For context: the UK charges 25%, Germany 30%, France 25%, and the US 21%. Even after the new tax, the UAE remains one of the lowest-tax jurisdictions globally.
Free Zone Qualifying Rate: 0%
Free zone companies can qualify for a 0% rate on "qualifying income." This is the key provision that keeps Dubai attractive for international businesses.
To qualify, a free zone company must: be a "Qualifying Free Zone Person" (QFZP), maintain adequate substance in the UAE, not have elected to be subject to regular corporate tax, comply with transfer pricing rules, derive "qualifying income," and prepare audited financial statements.
This is not automatic — you must actively maintain compliance with all conditions.
What Counts as Qualifying Income?
This is the most important concept in UAE corporate tax for free zone companies.
Qualifying Income (0% Rate)
Transactions with other free zone persons (free zone to free zone): 0% Certain qualifying activities regardless of recipient: 0% (includes manufacturing, processing, logistics, and certain services) Income from qualifying intellectual property: 0% Any other income that satisfies the conditions set out in the relevant regulations
Non-Qualifying Income (9% Rate)
Income from transactions with mainland UAE businesses or consumers is generally subject to the standard 9% rate. This means if your free zone company sells services directly to a mainland UAE customer, that income is taxed at 9%.
However, if your free zone company sells services to international clients (outside the UAE), that income can qualify for the 0% rate as a qualifying activity, provided substance requirements are met.
The Practical Implication
For most international founders setting up in a Dubai free zone — those running SaaS, consulting, e-commerce, or digital services with international clients — the majority of income should qualify for the 0% rate.
The founders most affected by the 9% rate are those with significant UAE mainland customers. If you're selling to local UAE businesses or consumers, you'll pay 9% on that income.
Substance Requirements: What You Actually Need
"Adequate substance" is the condition that trips up founders who set up a company on paper but don't genuinely operate from the UAE.
The requirements include: core income-generating activities (CIGA) conducted in the UAE (this means decision-making, key operations, and management happen in the UAE, not from your laptop in Bali), adequate number of qualified employees in the UAE (or outsourced functions to UAE service providers), adequate operating expenditure incurred in the UAE, and directed and managed from within the UAE.
What this means in practice: you need a real office (even a flexi-desk counts), you need to be physically present in the UAE making business decisions, and you need to demonstrate that the UAE is your genuine operational base.
A company with a registered address but an owner who spends 300 days a year in London is not meeting substance requirements.
Tax Registration and Compliance
All businesses operating in the UAE must register for corporate tax with the Federal Tax Authority (FTA).
Registration
Register within 30 days of your license issuance date. Registration is done through the FTA's EmaraTax portal. You'll receive a Tax Registration Number (TRN).
Filing and Payment
Tax returns must be filed within 9 months after the end of your financial year. For a company with a December 31 year-end, the return is due by September 30 of the following year. Payment is due at the same time as filing.
Penalties for late registration, late filing, or late payment are significant — AED 10,000+ depending on the violation.
Transfer Pricing
UAE transfer pricing rules follow OECD guidelines. Transactions between related parties (including between you and your own company) must be at arm's length. If you're the sole owner and employee of your free zone company, your salary must be reasonable — not artificially inflated to reduce taxable profit.
Maintain proper documentation of all related-party transactions.
Frequently Asked Questions
Does this affect personal income tax? No. UAE personal income tax remains at 0%. The corporate tax applies only to business entities.
Do I need an accountant now? Yes, or at minimum a qualified bookkeeper. You'll need proper financial records, audited statements (for free zone QFZP claims), and tax return preparation.
Can I still use Dubai as a zero-tax base? For personal income: absolutely, 0% personal income tax remains. For corporate income: yes, if your free zone company earns qualifying income and meets substance requirements, 0% corporate tax is achievable.
What about the 5% VAT? VAT (5%) has been in effect since 2018. It's separate from corporate tax. Most free zone to free zone transactions and exports are zero-rated for VAT purposes.
Should I form in a free zone or mainland? For most international digital businesses: free zone. The potential 0% corporate rate, combined with 0% personal income tax, still makes Dubai one of the most tax-efficient jurisdictions globally.
The Bottom Line
The introduction of UAE corporate tax changed the narrative but not the fundamental value proposition for most international founders.
If you run a digital business with international clients, set up properly in a free zone, and maintain genuine substance in the UAE — you can still achieve 0% corporate tax and 0% personal income tax. That combination is nearly unmatched globally.
What has changed is that "set it and forget it" no longer works. You need proper tax registration, compliance, audited accounts, and substance. The days of opening a company, getting a visa, and ignoring everything else are over.
Vector helps you set up with compliance built in from day one — not bolted on as an afterthought. Check your eligibility to get started.
Ready to take the next step?
Check your eligibility for a free initial assessment, or start with a Relocation Readiness Audit.
Check eligibilityRelated guides
Dubai Free Zone Company Setup: Complete Guide (2026)
Step-by-step guide to setting up a company in a Dubai free zone. Covers costs, timelines, visa requirements, and which free zone is right for your business.
Dubai vs Andorra for Business Relocation: Tax, Lifestyle & Cost Compared
A detailed comparison of Dubai and Andorra for business relocation. Covers tax rates, cost of living, residency requirements, and which jurisdiction fits your situation.
Best Low-Tax Countries for Entrepreneurs in 2026
A practical guide to the best low-tax countries for entrepreneurs in 2026. Covers Dubai, Andorra, Malta, Delaware, and other jurisdictions with real costs and trade-offs.