Conditions for the application of the "zero rate" for business in the UAE

21.04.2025

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The UAE is one of the most attractive jurisdictions for business, which is known for its preferential tax regime. In the light of the trends in the Double Taxation Treaty between the Russian Federation and the UAE, it is possible to predict an increase in interest among private investors in the UAE.

There are more than 40 free economic zones (FEZs), the residents of which, subject to certain conditions, have the right to apply a corporate tax rate of 0%. 

Below is a list of 9 conditions under which the "zero rate" of corporate tax can be applied. These conditions must be met by the company in the aggregate:

1.	Availability of the status of a FEZ resident (the company is registered in the FEZ and fulfills the conditions of the FEZ).
2.	Carries out "qualified" activities. List of activities. For example, ownership of shares and other securities for investment purposes, wealth and investment management services, logistics services.
3.	Maintains an adequate level of presence in the FEZ (Substance). That is, it carries out the main activity in the FEZ, has an office and employees, assets, expenses.
4.	The company has not made a decision on corporate  taxation at standard rates.
5.	Receives "qualified income".  "Qualified" income for a FEZ resident is income:  from transactions made with a person in the FEZ, provided that these persons are the beneficial recipient of the transactions and the transactions are not related to the excluded activity;  from transactions made with a person who is not located in the FEZ in relation to qualified activities, excluding income from excluded activities;  ownership or exploitation of qualified intellectual property (IP);  any other income, if the minimum requirements are met (de minimis rule). Excluded activity is the activity of a FEZ resident, within the framework of which he receives unqualified income.
6.	Applies the arm's length rule in transactions with related parties.  This rule means that transactions between related parties must be carried out on market terms, that is, as if they were concluded between independent companies.
7.	Applies transfer pricing rules and reports accordingly.
8.	Unqualified revenue does not exceed the minimum requirements (de minimis requirements). The minimum requirements are met if the amount of unqualified revenue during the tax period does not exceed 5% of the resident's total revenue or AED 5,000,000 (the lowest condition applies).  Unqualified revenue is revenue received from:  Excluded Activities Activities that are not qualifying activities, when the other party to the transaction is a person who is not located in a free zone Transactions with a free zone person, if such a free zone person is not the beneficiary of the relevant services or goods.
9.	Availability of financial (audit) statements.

These rules will help you when planning to do business in the UAE.

Author: Yaroslavna Zadesenskaya

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