Free Zone vs Mainland: UAE Tax Compared

By Shihabudeen Pattasseri, FTA-Registered Tax Agent (TAAN 20056925) · Updated 2026-11-03

A common question when setting up or restructuring in the UAE is whether a free zone or mainland company is better for tax. The honest answer is that it depends on what you do and who your customers are. Here is how they compare.

Corporate Tax

• Mainland: 0% up to AED 375,000 and 9% above it on taxable income.
• Free zone: a Qualifying Free Zone Person can pay 0% on qualifying income and 9% on the rest, if it meets all the conditions.

The free zone 0% rate sounds decisive, but it only applies to qualifying income — broadly income from other free zone persons and certain qualifying activities. Income from mainland customers is usually non-qualifying and taxed at 9%.

VAT

VAT applies to both free zone and mainland companies in the same way, at 5%, with registration driven by the same thresholds. Some free zones are designated zones with special rules for goods, but services are treated normally.

Which suits you

• Selling mostly to mainland UAE customers: the free zone 0% is limited, so the choice is more about setup cost and licensing
• Selling mostly to other free zone or overseas customers: the QFZP 0% can be valuable if conditions are met
• Either way, both must register for Corporate Tax and keep proper records

The structure should follow the business, not the other way around. A short review of your customer base and activities usually makes the right choice clear.

Frequently asked questions

Do free zone companies pay less tax than mainland?

Only on qualifying income, if they meet the Qualifying Free Zone Person conditions. Non-qualifying income is taxed at 9%, the same as mainland.

Is VAT different for free zone companies?

No, VAT applies at 5% to both, though some designated zones have special rules for goods.

Do both need to register for Corporate Tax?

Yes. Both free zone and mainland companies must register.

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