UAE Corporate Tax: For some free zone businesses it makes sense to opt for the 9%

With the UAE’s corporate tax regime now in effect, free zone entities can enjoy a 0% tax rate on their ‘qualifying income’. But not all free zone businesses qualify — and intriguingly, some are choosing to opt into the 9% tax rate voluntarily.

Far from being a burden, this strategic choice can unlock significant structural and financial benefits.

Dh375,000 tax-free threshold
Electing to be taxed gives access to the standard Dh375,000 profit threshold, meaning income up to this level remains tax-free — even for taxable entities.

Tax group formation
Electing companies can form a tax group with other UAE entities. This enables consolidated tax filings and reduces the complexity and compliance costs of transfer pricing between related parties.

Qualifying group benefits
By forming a qualifying group, businesses can transfer assets and restructure operations tax-neutrally, taking advantage of the business restructuring relief provisions.

Small Business Relief
Even after electing, entities with revenue under Dh3 million may still pay zero tax under the Small Business Relief regime, thus combining simplicity with strategic flexibility.

Loss transfer within group
Taxable free zone companies can transfer tax losses to related taxable group members, improving overall group tax efficiency.

Strategic and financial credibility
Being a tax-paying entity enhances credibility with banks, investors, and foreign partners. It may also open the doors to double tax treaty benefits, reducing withholding tax on overseas income.

Clarity, stability and future-proofing
Electing provides a clear tax position, avoiding uncertainty around ‘qualifying income’ and reducing audit risks. It also positions companies well for M&A activity and potential tightening of free zone tax exemptions in the future.

Electing to pay 9% corporate tax is not just about compliance — it's a strategic choice that supports growth, group efficiency, and global credibility for forward-looking free zone businesses.