When setting up a company in the UAE, one of the most important decisions is choosing between a Free Zone and Mainland business structure. While the choice affects ownership, operations, and licensing, in 2025, it also has a direct impact on corporate tax obligations.
With the UAE Corporate Tax now in effect, understanding the difference between Free Zone and Mainland tax rules is crucial to staying compliant and maximizing benefits.
This guide breaks down the tax implications of Free Zone vs Mainland companies in 2025, helping you make an informed decision for your business.
9%
Mainland Tax Rate
Above AED 375,000
0%
Free Zone Rate
On qualifying income
5%
VAT Rate
Both structures
Key Takeaways
Mainland companies are subject to 9% corporate tax on profits above AED 375,000
Free Zone companies may qualify for 0% tax on "Qualifying Income"
Not all Free Zone activities automatically qualify for the 0% rate
The choice impacts tax obligations, compliance requirements, and operational flexibility
Overview: Corporate Tax in the UAE
The UAE's corporate tax framework, introduced in 2023 and now in full effect for 2025, has created distinct tax implications for different business structures. Understanding these differences is essential for making strategic business decisions.
Quick Overview:
Standard Corporate Tax Rate:
9% on taxable profits exceeding AED 375,000
Free Zone Companies:
May qualify for a 0% rate on "Qualifying Income", subject to strict conditions
Mainland Companies:
Fully subject to 9% corporate tax above the AED 375,000 threshold
Tax Implications for Mainland Companies
Mainland businesses are those licensed by the Department of Economic Development (DED) in each Emirate. These companies have full access to the UAE domestic market but are subject to the standard corporate tax regime.
Key Points:
1
Subject to 9% corporate tax on net profits above AED 375,000
2
Must register with the Federal Tax Authority (FTA) and file annual tax returns
3
No exemptions for income earned within the UAE or abroad (except exempt categories like dividends and capital gains from qualifying shareholdings)
4
Can trade freely across the UAE and internationally without restrictions
Best suited for:
Companies targeting the UAE domestic market, government contracts, or large-scale trading operations.
Tax Implications for Free Zone Companies
Free Zone companies operate under specific Free Zone Authorities (e.g., JAFZA, DMCC, DIFC, ADGM). These entities can benefit from preferential tax treatment under certain conditions.
Key Points:
1
Eligible for 0% corporate tax on "Qualifying Income" (as defined by the FTA)
2
Non-qualifying income taxed at 9%
3
Must maintain audited financial accounts
4
Transactions with UAE Mainland entities may be taxed at 9% unless structured carefully
5
Many Free Zones require compliance with economic substance regulations (ESR)
What is Qualifying Income?
The FTA defines this as income earned from:
Transactions with other Free Zone entities
Certain regulated activities (like re-export, manufacturing, and logistics)
Income from foreign clients
Best suited for:
Export-oriented businesses, holding companies, e-commerce platforms, and firms serving international clients.
Free Zone vs Mainland: Key Tax Differences in 2025
Corporate Tax Rate
Mainland
9% above AED 375,000
Free Zone
0% on qualifying income, 9% on non-qualifying
Trading Scope
Mainland
Full UAE market access
Free Zone
Restricted direct Mainland trade
VAT
Mainland
Applies (5%)
Free Zone
Applies (5%)
FTA Compliance
Mainland
Must register, file annually
Free Zone
Must register, file annually
Audit Requirement
Mainland
Recommended but not always mandatory
Free Zone
Mandatory in most Free Zones
ESR Compliance
Mainland
Applicable in some cases
Free Zone
Strictly applicable
Common Mistakes Businesses Make
When navigating the Free Zone vs Mainland decision, businesses often make critical errors that can lead to unexpected tax liabilities and compliance issues.
Assuming all Free Zone income is tax-free
Many businesses incorrectly believe that simply operating in a Free Zone grants automatic tax exemption. Only "Qualifying Income" is eligible for 0% tax.
Not separating qualifying and non-qualifying income
Proper income segregation is essential for accurate tax compliance. Mixed income streams require careful accounting.
Overlooking audit and reporting obligations in Free Zones
Free Zones typically have stricter audit requirements than Mainland, which can catch businesses off guard.
Setting up in a Free Zone but mainly trading with Mainland clients
This misalignment can lead to unexpected 9% tax on most income, negating the Free Zone benefits.
How PRF Can Help
Choosing between Free Zone and Mainland structures requires careful analysis of your business model, target market, and growth plans. PRF Management Consultancy provides expert guidance to help you make the right decision and ensure ongoing compliance.
Our Services Include:
Business structure advisory (Free Zone vs Mainland analysis)
Tax optimization strategies and qualifying income assessment
Corporate tax registration and compliance management
Economic substance regulation (ESR) compliance
Audit preparation and financial reporting support
Schedule a Consultation
Final Thoughts
In 2025, the choice between Free Zone and Mainland business structures isn't just about ownership flexibility—it's about tax strategy.
If you're focused on the UAE domestic market, a Mainland company may be the right fit despite the 9% tax. If your business is international or Free Zone-focused, you could benefit from the 0% corporate tax rate on qualifying income.
Before making a decision, consult with a tax advisor to evaluate how your business activities fit into the UAE's corporate tax framework.
Compliance is key—choosing the right structure now can save you from costly mistakes later.
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Article
Tax Strategy
Free Zone vs Mainland Tax Rules in 2025
PRF Experts
6 min read
November 3, 2025
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When setting up a company in the UAE, one of the most important decisions is choosing between a Free Zone and Mainland business structure. While the choice affects ownership, operations, and licensing, in 2025, it also has a direct impact on corporate tax obligations.
With the UAE Corporate Tax now in effect, understanding the difference between Free Zone and Mainland tax rules is crucial to staying compliant and maximizing benefits.
This guide breaks down the tax implications of Free Zone vs Mainland companies in 2025, helping you make an informed decision for your business.
9%
Mainland Tax Rate
Above AED 375,000
0%
Free Zone Rate
On qualifying income
5%
VAT Rate
Both structures
Key Takeaways
Mainland companies are subject to 9% corporate tax on profits above AED 375,000
Free Zone companies may qualify for 0% tax on "Qualifying Income"
Not all Free Zone activities automatically qualify for the 0% rate
The choice impacts tax obligations, compliance requirements, and operational flexibility
Overview: Corporate Tax in the UAE
The UAE's corporate tax framework, introduced in 2023 and now in full effect for 2025, has created distinct tax implications for different business structures. Understanding these differences is essential for making strategic business decisions.
Quick Overview:
Standard Corporate Tax Rate:
9% on taxable profits exceeding AED 375,000
Free Zone Companies:
May qualify for a 0% rate on "Qualifying Income", subject to strict conditions
Mainland Companies:
Fully subject to 9% corporate tax above the AED 375,000 threshold
Tax Implications for Mainland Companies
Mainland businesses are those licensed by the Department of Economic Development (DED) in each Emirate. These companies have full access to the UAE domestic market but are subject to the standard corporate tax regime.
Key Points:
1
Subject to 9% corporate tax on net profits above AED 375,000
2
Must register with the Federal Tax Authority (FTA) and file annual tax returns
3
No exemptions for income earned within the UAE or abroad (except exempt categories like dividends and capital gains from qualifying shareholdings)
4
Can trade freely across the UAE and internationally without restrictions
Best suited for:
Companies targeting the UAE domestic market, government contracts, or large-scale trading operations.
Tax Implications for Free Zone Companies
Free Zone companies operate under specific Free Zone Authorities (e.g., JAFZA, DMCC, DIFC, ADGM). These entities can benefit from preferential tax treatment under certain conditions.
Key Points:
1
Eligible for 0% corporate tax on "Qualifying Income" (as defined by the FTA)
2
Non-qualifying income taxed at 9%
3
Must maintain audited financial accounts
4
Transactions with UAE Mainland entities may be taxed at 9% unless structured carefully
5
Many Free Zones require compliance with economic substance regulations (ESR)
What is Qualifying Income?
The FTA defines this as income earned from:
Transactions with other Free Zone entities
Certain regulated activities (like re-export, manufacturing, and logistics)
Income from foreign clients
Best suited for:
Export-oriented businesses, holding companies, e-commerce platforms, and firms serving international clients.
Free Zone vs Mainland: Key Tax Differences in 2025
Factor
Mainland
Free Zone
Corporate Tax Rate
9% above AED 375,000
0% on qualifying income, 9% on non-qualifying
Trading Scope
Full UAE market access
Restricted direct Mainland trade
VAT
Applies (5%)
Applies (5%)
FTA Compliance
Must register, file annually
Must register, file annually
Audit Requirement
Recommended but not always mandatory
Mandatory in most Free Zones
ESR Compliance
Applicable in some cases
Strictly applicable
Common Mistakes Businesses Make
When navigating the Free Zone vs Mainland decision, businesses often make critical errors that can lead to unexpected tax liabilities and compliance issues.
Assuming all Free Zone income is tax-free
Many businesses incorrectly believe that simply operating in a Free Zone grants automatic tax exemption. Only "Qualifying Income" is eligible for 0% tax.
Not separating qualifying and non-qualifying income
Proper income segregation is essential for accurate tax compliance. Mixed income streams require careful accounting.
Overlooking audit and reporting obligations in Free Zones
Free Zones typically have stricter audit requirements than Mainland, which can catch businesses off guard.
Setting up in a Free Zone but mainly trading with Mainland clients
This misalignment can lead to unexpected 9% tax on most income, negating the Free Zone benefits.
How PRF Can Help
Choosing between Free Zone and Mainland structures requires careful analysis of your business model, target market, and growth plans. PRF Management Consultancy provides expert guidance to help you make the right decision and ensure ongoing compliance.
Our Services Include:
Business structure advisory (Free Zone vs Mainland analysis)
Tax optimization strategies and qualifying income assessment
Corporate tax registration and compliance management
Economic substance regulation (ESR) compliance
Audit preparation and financial reporting support
Schedule a Consultation
Final Thoughts
In 2025, the choice between Free Zone and Mainland business structures isn't just about ownership flexibility—it's about tax strategy.
If you're focused on the UAE domestic market, a Mainland company may be the right fit despite the 9% tax. If your business is international or Free Zone-focused, you could benefit from the 0% corporate tax rate on qualifying income.
Before making a decision, consult with a tax advisor to evaluate how your business activities fit into the UAE's corporate tax framework.
Compliance is key—choosing the right structure now can save you from costly mistakes later.
Table of Contents
1
Corporate Tax Overview
2
Mainland Tax Implications
3
Free Zone Tax Implications
4
Key Differences 2025
5
Common Mistakes
6
How PRF Can Help
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Free Zone vs Mainland Tax Rules in 2025
PRF Experts
6 min read
November 3, 2025
When setting up a company in the UAE, one of the most important decisions is choosing between a Free Zone and Mainland business structure. While the choice affects ownership, operations, and licensing, in 2025, it also has a direct impact on corporate tax obligations.
With the UAE Corporate Tax now in effect, understanding the difference between Free Zone and Mainland tax rules is crucial to staying compliant and maximizing benefits.
This guide breaks down the tax implications of Free Zone vs Mainland companies in 2025, helping you make an informed decision for your business.
9%
Mainland Tax Rate
Above AED 375,000
0%
Free Zone Rate
On qualifying income
5%
VAT Rate
Both structures
Key Takeaways
Mainland companies are subject to 9% corporate tax on profits above AED 375,000
Free Zone companies may qualify for 0% tax on "Qualifying Income"
Not all Free Zone activities automatically qualify for the 0% rate
The choice impacts tax obligations, compliance requirements, and operational flexibility
Overview: Corporate Tax in the UAE
The UAE's corporate tax framework, introduced in 2023 and now in full effect for 2025, has created distinct tax implications for different business structures. Understanding these differences is essential for making strategic business decisions.
Quick Overview:
Standard Corporate Tax Rate:
9% on taxable profits exceeding AED 375,000
Free Zone Companies:
May qualify for a 0% rate on "Qualifying Income", subject to strict conditions
Mainland Companies:
Fully subject to 9% corporate tax above the AED 375,000 threshold
Tax Implications for Mainland Companies
Mainland businesses are those licensed by the Department of Economic Development (DED) in each Emirate. These companies have full access to the UAE domestic market but are subject to the standard corporate tax regime.
Key Points:
1
Subject to 9% corporate tax on net profits above AED 375,000
2
Must register with the Federal Tax Authority (FTA) and file annual tax returns
3
No exemptions for income earned within the UAE or abroad (except exempt categories like dividends and capital gains from qualifying shareholdings)
4
Can trade freely across the UAE and internationally without restrictions
Best suited for:
Companies targeting the UAE domestic market, government contracts, or large-scale trading operations.
Tax Implications for Free Zone Companies
Free Zone companies operate under specific Free Zone Authorities (e.g., JAFZA, DMCC, DIFC, ADGM). These entities can benefit from preferential tax treatment under certain conditions.
Key Points:
1
Eligible for 0% corporate tax on "Qualifying Income" (as defined by the FTA)
2
Non-qualifying income taxed at 9%
3
Must maintain audited financial accounts
4
Transactions with UAE Mainland entities may be taxed at 9% unless structured carefully
5
Many Free Zones require compliance with economic substance regulations (ESR)
What is Qualifying Income?
The FTA defines this as income earned from:
Transactions with other Free Zone entities
Certain regulated activities (like re-export, manufacturing, and logistics)
Income from foreign clients
Best suited for:
Export-oriented businesses, holding companies, e-commerce platforms, and firms serving international clients.
Free Zone vs Mainland: Key Tax Differences in 2025
Factor
Mainland
Free Zone
Corporate Tax Rate
9% above AED 375,000
0% on qualifying income, 9% on non-qualifying
Trading Scope
Full UAE market access
Restricted direct Mainland trade
VAT
Applies (5%)
Applies (5%)
FTA Compliance
Must register, file annually
Must register, file annually
Audit Requirement
Recommended but not always mandatory
Mandatory in most Free Zones
ESR Compliance
Applicable in some cases
Strictly applicable
Common Mistakes Businesses Make
When navigating the Free Zone vs Mainland decision, businesses often make critical errors that can lead to unexpected tax liabilities and compliance issues.
Assuming all Free Zone income is tax-free
Many businesses incorrectly believe that simply operating in a Free Zone grants automatic tax exemption. Only "Qualifying Income" is eligible for 0% tax.
Not separating qualifying and non-qualifying income
Proper income segregation is essential for accurate tax compliance. Mixed income streams require careful accounting.
Overlooking audit and reporting obligations in Free Zones
Free Zones typically have stricter audit requirements than Mainland, which can catch businesses off guard.
Setting up in a Free Zone but mainly trading with Mainland clients
This misalignment can lead to unexpected 9% tax on most income, negating the Free Zone benefits.
How PRF Can Help
Choosing between Free Zone and Mainland structures requires careful analysis of your business model, target market, and growth plans. PRF Management Consultancy provides expert guidance to help you make the right decision and ensure ongoing compliance.
Our Services Include:
Business structure advisory (Free Zone vs Mainland analysis)
Tax optimization strategies and qualifying income assessment
Corporate tax registration and compliance management
Economic substance regulation (ESR) compliance
Audit preparation and financial reporting support
Schedule a Consultation
Final Thoughts
In 2025, the choice between Free Zone and Mainland business structures isn't just about ownership flexibility—it's about tax strategy.
If you're focused on the UAE domestic market, a Mainland company may be the right fit despite the 9% tax. If your business is international or Free Zone-focused, you could benefit from the 0% corporate tax rate on qualifying income.
Before making a decision, consult with a tax advisor to evaluate how your business activities fit into the UAE's corporate tax framework.
Compliance is key—choosing the right structure now can save you from costly mistakes later.
Home
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Article
Tax Strategy
Free Zone vs Mainland Tax Rules in 2025
PRF Experts
6 min read
November 3, 2025
Related Insights
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Navigate the complexities of UAE's corporate tax system with our comprehensive guide covering rates, exemptions, and filing requirements.
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Table of Contents
1
Corporate Tax Overview
2
Mainland Tax Implications
3
Free Zone Tax Implications
4
Key Differences 2025
5
Common Mistakes
6
How PRF Can Help
About the Authors
PRF
PRF Experts
Business Setup Team
Our team specializes in UAE business formation, tax strategy, and corporate compliance advisory.
Need Expert Guidance?
Our business setup specialists are ready to help you choose the right structure for your business.
Contact Us
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Contact Us
2801, Aspin Commercial Tower Sheikh Zayed Road, Dubai
Office no 402 , LMS Finswell sakore Nagar Viman nagar road, pune 411014
+971-56-459-3907
support@prfmc.com
Don’t Missed Subscribed!
About Us
Legality
Contact Us
2801, Aspin Commercial Tower Sheikh Zayed Road, Dubai
Office no 402 , LMS Finswell sakore Nagar Viman nagar road, pune 411014
+971-56-459-3907
support@prfmc.com
Don’t Missed Subscribed!
About Us
Legality
Contact Us
2801, Aspin Commercial Tower Sheikh Zayed Road, Dubai
Office no 402 , LMS Finswell sakore Nagar Viman nagar road, pune 411014
+971-56-459-3907
support@prfmc.com