He thought his free zone licence gave him 0% tax. It almost cost him five years of it.
A trading company set up in a UAE free zone came to us convinced every dirham it earned was tax-free. The licence said "free zone." The owner heard "0% forever."
The complication: roughly AED 6.2 million of their revenue came from selling directly to mainland UAE customers — non-qualifying income. Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) and Cabinet Decision No. 100 of 2023, a Qualifying Free Zone Person keeps the 0% rate only if non-qualifying revenue stays under the de minimis limit: the lower of 5% of total revenue or AED 5 million. They had blown past both.
And breaching de minimis doesn't cost you just one year. You lose Qualifying Free Zone Person status from the start of that tax period — and for the next four. That is five years of profits taxed at 9% instead of 0%.
What we did: routed the mainland sales through a proper mainland distribution arrangement, ring-fenced qualifying versus non-qualifying revenue, and rebuilt the substance and documentation needed to defend the 0% claim.
The lesson? A free zone licence is a door, not a guarantee. The 0% is earned every tax period, not granted once.
A version of this post was first shared on LinkedIn. Names and figures are anonymised. This is general information, not advice for your business.