UAE Corporate Tax: QFZP Rules, Rates, Deadlines and Penalties

For Bulgarian investors, a UAE corporate structure should be assessed simultaneously under UAE tax law, the Bulgarian controlled foreign company and transfer pricing rules, and the Double Tax Treaty between Bulgaria and the UAE. 

The UAE Corporate Tax regime is primarily governed by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended, together with the relevant Cabinet, Ministry of Finance and Federal Tax Authority decisions. 

Under the general regime, Taxable Income up to AED 375,000 in a Tax Period is subject to Corporate Tax at 0%, while the portion exceeding AED 375,000 is subject to 9%. Free Zone Persons are also within the Corporate Tax framework unless a specific statutory exemption applies. 

A separate regime applies to certain large multinational groups. The UAE Domestic Minimum Top-up Tax (UAE DMTT) applies for financial years beginning on or after 1 January 2025 to relevant Constituent Entities of multinational groups with annual consolidated global revenue of at least EUR 750 million in at least two of the four financial years immediately preceding the relevant year. The general 0% and 9% rates therefore do not provide a complete tax analysis for enterprises within the scope of Pillar Two. 

A Free Zone Person may apply the 0% Corporate Tax rate to its Qualifying Income only if it satisfies all conditions for QFZP status. Taxable Income of a QFZP that is not Qualifying Income is subject to 9%. A QFZP is not entitled to apply the standard 0% rate to the first AED 375,000 of its non-qualifying Taxable Income. 

The principal QFZP conditions include maintaining adequate substance in a Free Zone, deriving Qualifying Income, not electing to be subject to the standard Corporate Tax regime, complying with the Arm's Length Principle, satisfying the applicable transfer pricing documentation requirements, maintaining audited Financial Statements and meeting the de minimis requirement. 

Adequate substance is assessed by reference to the nature and scale of the business. The QFZP must conduct the Core Income-Generating Activities relating to its Qualifying Income in the relevant Free Zone and maintain adequate assets, qualified employees and operating expenditure. Permitted outsourcing may be possible where the relevant statutory conditions and supervision requirements are satisfied. A flexi-desk arrangement or the absence of a predetermined number of employees does not therefore automatically disqualify a company. The substance must be adequate for the actual business conducted. 

A QFZP must prepare and maintain audited Financial Statements irrespective of its Revenue. For Tax Periods beginning on or after 1 January 2025, the relevant audit requirement is also reflected in Ministerial Decision No. 84 of 2025. 

Not all income earned by a Free Zone Person is taxed at 0%. Qualifying Income depends on the nature of the counterparty, the activity performed and the specific rules governing Qualifying Activities, Excluded Activities, intellectual property, immovable property and Permanent Establishments. 

Income from a Mainland customer is not automatically non-qualifying. Income from a transaction with a Non-Free Zone Person may constitute Qualifying Income where it arises from a Qualifying Activity and is not an Excluded Activity, subject to the remaining statutory requirements. For transactions between Free Zone Persons, the Beneficial Recipient test is also relevant. 

In 2025, Ministerial Decision No. 265 of 2023 was repealed and replaced by Ministerial Decision No. 229 of 2025. The new Decision updated the scope of Qualifying Activities and Excluded Activities, including rules concerning Qualifying Commodity Trading and treasury and financing services. QFZP analyses should therefore be based on the current framework rather than the repealed 2023 Decision. 

Specific rules determine which Revenue is included or excluded when calculating the threshold. In particular, the fact that an invoice is issued to a Mainland customer is not, by itself, sufficient to conclude that the de minimis requirement has been breached. 

During a period in which the company is not a QFZP, the general Corporate Tax rates apply, including 0% on Taxable Income up to AED 375,000 and 9% on the portion exceeding that threshold, where the applicable conditions are satisfied. Loss of QFZP status does not therefore automatically result in a 9% tax rate on the company's entire Taxable Income. 

A Free Zone Person may also elect not to be treated as a QFZP. The election applies for the relevant Tax Period and the following four Tax Periods. 

Small Business Relief allows certain Resident Taxable Persons with Revenue not exceeding AED 3,000,000 to elect to be treated as having no Taxable Income for the relevant Tax Period, subject to the applicable conditions. 

In August 2026, the availability period for Small Business Relief was extended. The relief may now apply to eligible Tax Periods ending on or before 31 December 2029, rather than only through the end of 2026. The AED 3,000,000 Revenue threshold remains in place. 

Small Business Relief is elective rather than automatic and must be claimed in the Tax Return. A QFZP cannot simultaneously claim Small Business Relief. The relief is also unavailable to certain members of large multinational groups falling within the relevant statutory definition. 

The UAE Corporate Tax regime applies the Arm's Length Principle to transactions and arrangements between Related Parties. The rules apply to both domestic and cross-border transactions. 

Payments or benefits to Connected Persons, including owners, directors and certain related persons, are deductible only to the extent that they correspond to the Market Value of the service or benefit actually provided and are incurred wholly and exclusively for the purposes of the Taxable Person's Business. Any excess over Market Value is not deductible. It is therefore more accurate to describe the consequence as a restriction on deductibility rather than automatically characterising the amount as a hidden profit distribution. 

Local File and Master File requirements arise where the statutory thresholds are met. Relevant thresholds include Revenue of at least AED 200,000,000 for the Taxable Person or membership in a Multinational Enterprise Group with consolidated Revenue of at least AED 3.15 billion, subject to the detailed statutory exceptions. 

A Resident Juridical Person, including a Free Zone Person, incorporated, established or recognised in the UAE on or after 1 March 2024 must generally submit its Corporate Tax registration application within three months from the date of incorporation, establishment or recognition. Different deadlines apply to other categories under FTA Decision No. 3 of 2024. 

A Corporate Tax Return must generally be filed and any Corporate Tax due paid within nine months from the end of the relevant Tax Period. For a Tax Period ending on 31 December, the normal deadline is therefore 30 September of the following year. 

Relevant records and documentation supporting the Corporate Tax position must generally be retained for seven years following the end of the Tax Period to which they relate. 

Subject to the applicable conditions, a Taxable Person may obtain relief from the AED 10,000 penalty where its first Tax Return is filed within seven months from the end of its first Tax Period. The initiative may also apply where the penalty has already been imposed or paid. 

It is therefore no longer complete to state that every late registration inevitably results in a final AED 10,000 cost without considering the applicable waiver rules. 

A Bulgarian person owning or managing a UAE company should consider UAE tax law, Bulgarian tax law and the Bulgaria-UAE Double Tax Treaty together. 

Under Article 5 of the Treaty, a Permanent Establishment includes a fixed place of business through which an enterprise carries on all or part of its business, with a place of management, branch and office expressly listed as examples. Separately, the provision of services, including consultancy services, through employees or other personnel may create a Permanent Establishment where the activities relating to the same or a connected project continue for more than nine months within any twelve-month period. The nine-month threshold applies specifically to this service Permanent Establishment rule and is not a general threshold for every form of Permanent Establishment. 

Under Article 7 of the Treaty, the profits of an enterprise of one Contracting State are generally taxable only in that State unless the enterprise carries on business in the other State through a Permanent Establishment situated there. In that case, the other State may tax the profits attributable to the Permanent Establishment. 

Article 10 of the Treaty permits the source State to tax dividends, but where the Treaty conditions are satisfied, the tax may not exceed 5% of the gross amount of the dividends. This is a treaty maximum and not an automatically applicable tax rate in every case. 

The controlled foreign company rules under Articles 47v and 47g of the Bulgarian Corporate Income Tax Act may be relevant where a Bulgarian taxpayer holds an interest in a UAE entity. 

For a foreign entity, the control test is met where the Bulgarian taxpayer, alone or together with its associated enterprises, directly or indirectly holds more than 50% of the voting rights or capital, or is entitled to receive more than 50% of the profits. The separate tax condition under Article 47v(1)(2) must also be satisfied. 

A 0% rate on Qualifying Income in the UAE may therefore make a CFC analysis relevant, but it does not automatically cause a UAE company to be treated as a controlled foreign company for Bulgarian tax purposes. All statutory conditions must be examined. 

Where the CFC rules apply, Article 47g provides for an adjustment to the Bulgarian taxpayer's tax financial result by reference to the relevant undistributed taxable profit, proportionate to the applicable participation and period. The Bulgarian legislation also provides an exception where substantial economic activity supported by the necessary personnel, equipment, assets and premises is demonstrated. 

Transactions between related Bulgarian and UAE entities should be assessed under the Arm's Length Principle in both jurisdictions. 

In Bulgaria, Ordinance No. H-3 of 7 November 2025 on the methods for determining arm's length prices has applied since 1 January 2026. Local File and Master File obligations apply only to taxpayers falling within the relevant statutory scope of the Bulgarian Tax and Social Security Procedure Code. 

The principal risks include failure to maintain adequate substance, excessive non-qualifying Revenue, breach of the de minimis threshold, failure to maintain the required audited Financial Statements and non-compliance with applicable transfer pricing requirements. 

Use of a flexi-desk is not, by itself, an automatic ground for losing QFZP status. A risk arises where the assets, employees, expenditure and Core Income-Generating Activities are not adequate for the nature and scale of the business. 

Similarly, invoicing a Mainland customer does not automatically disqualify the company. The relevant question is whether the income constitutes Qualifying Income, non-qualifying Revenue or income subject to a separate statutory treatment. 

Corporate Tax compliance should form part of the company's ongoing operational management. For a QFZP, this requires continuous monitoring of the nature of its Revenue, the de minimis threshold, economic substance, audited Financial Statements and transfer pricing obligations. 

The corporate structure should also correspond to the company's actual activities. Formal Free Zone incorporation cannot, by itself, replace the necessary assets, personnel, management functions, documented intra-group relationships and genuine business activity. 

Where Bulgarian persons are involved, the UAE structure should also be reviewed against the Bulgarian CFC regime, Bulgarian transfer pricing requirements and the Bulgaria-UAE Double Tax Treaty. 

Vassilev & Chisuse Law Firm provides legal assistance with QFZP eligibility analysis, corporate and tax structuring, transfer pricing, assessment of economic substance requirements and analysis of the tax implications for Bulgarian investors holding companies or conducting business in the UAE. 

This material is provided for general informational purposes only. It does not constitute individual legal, tax, financial or investment advice. The application of UAE and Bulgarian law depends on the specific facts, corporate structure, tax status, nature of the income and the actual place in which the business activities are conducted.