Corporate Tax for IFZA Companies

No. IFZA companies are taxable persons within the Corporate Tax regime. Some pay nothing — through Small Business Relief or the AED 375,000 nil band — but that is a claimed position on a filed return, not an exemption from the regime. There is no automatic free zone exemption.

Yes. Registration is mandatory for every IFZA company, including dormant entities, holding companies, and businesses expecting to pay no tax. Late registration carries a fixed AED 10,000 penalty whether or not any tax is due.

Usually not. Consulting and most general services are not listed qualifying activities, so income from mainland or overseas clients is generally not qualifying income. On top of that, the 0% rate requires adequate substance in the zone and audited financial statements. Most IFZA consultancies fail one or both tests — and are often better off with Small Business Relief anyway.

A resident business with revenue of AED 3 million or below in the relevant tax period and in all previous tax periods may elect to be treated as having no taxable income. It is claimed by making the election in your Corporate Tax return — it is not applied automatically. Under current rules it is available for tax periods ending on or before 31 December 2026.

Eligibility is lost permanently. The condition is that revenue did not exceed AED 3 million in the relevant period or in any previous period, so a single year above the threshold removes the relief for good — even if revenue falls back afterwards. Businesses approaching the line should plan the transition to standard rates in advance.

No. A Qualifying Free Zone Person cannot claim Small Business Relief. You choose one route. For most small IFZA companies the relief is both easier to support and more comprehensive, since it covers all income rather than only qualifying income.

Two worth knowing. Tax losses and disallowed net interest arising in a relief period cannot be carried forward to later periods, so a loss-making business planning strong future profits may prefer standard rates. And the relief has an end date under current rules, so it is a bridge rather than a permanent structure.

An audit is required to claim Qualifying Free Zone Person status, and may be required for your IFZA licence renewal depending on your licence package and activity. Small Business Relief does not itself require audited accounts, but you must still maintain proper accounting records and be able to produce financial statements for the tax period.

Remuneration for services actually provided is deductible to the extent it reflects market value for those services. Amounts above that, or drawings recorded as salary without a contract or genuine role, represent a distribution of profit and are not deductible. Keep an employment contract, payroll records, and a defensible rationale for the amount.

Costs incurred wholly and exclusively for the business — licence fees, office or desk costs, staff, software, professional fees, marketing, and business travel. Personal and family costs are not deductible even when paid from the company account, and entertainment expenses are only partially deductible. Mixing personal spending into the business account is the fastest way to lose deductions on review.

Each juridical person is generally a separate taxable person with its own registration and return. But transactions between entities under common ownership are related-party transactions requiring arm's length pricing, and arrangements designed mainly to obtain a tax advantage — such as splitting revenue across licences to stay under thresholds — can be challenged under the general anti-abuse rule.

Within nine months of the end of your tax period. A company with a December year-end files by 30 September of the following year. The deadline applies equally to companies claiming Small Business Relief or reporting nil tax.

Late registration carries a fixed AED 10,000 penalty. Late filing penalties accrue monthly and increase over time, with further penalties for late payment and incorrect returns. For a small company these penalties frequently exceed the tax that was actually due. Verify current penalty schedules with the FTA.

Register immediately and bring the filings current — exposure grows with time, not with disclosure. The FTA has previously operated waiver arrangements for certain late registrants who file within a shortened window, so the sequence in which you act can matter. Take advice quickly rather than waiting for the position to be perfect.

VAT is a separate regime with its own thresholds — mandatory registration above AED 375,000 of taxable supplies and voluntary registration above AED 187,500. Being in a free zone does not remove VAT obligations. Many IFZA companies need both registrations, and both draw on the same accounting records.

Accounting records, financial statements, invoices, contracts, bank statements, payroll records, and all documents supporting the return must be retained for the statutory period prescribed by the FTA — generally seven years from the end of the relevant tax period.

If you trade through a company, the company is the taxable person and files its own return. A natural person holding a licence in their own name is within scope where turnover from business activities exceeds AED 1 million in a calendar year. Which structure you use changes the analysis, so confirm how your licence is actually held.

Rarely for tax alone. Small Business Relief and the AED 375,000 nil band are available to mainland and free zone companies alike, so relocating does not change the outcome for most small businesses. Free zone status matters mainly to companies with genuine qualifying activities, real substance, and revenue well above the relief threshold. Decide on commercial grounds and let the tax analysis follow.

Under current rules the relief covers tax periods ending on or before 31 December 2026, after which eligible businesses move to standard rates — 0% on the first AED 375,000 of taxable income and 9% above. Planning ahead means getting bookkeeping, remuneration policy, and deductions in order before the first paying year, not during it. Monitor announcements from the Ministry of Finance in case the window is extended.

KGRN provides registration, a written comparison of your relief routes, bookkeeping and financial statements, correct election and return filing, backlog remediation for late registrations, transfer pricing support, FTA representation, and ongoing advisory — delivered by chartered accountants and priced for a small business.