Why Forward-Thinking Free Zone Businesses in the UAE Are Opting for the 9 Percent Corporate Tax Rate

At Zyla Accountants, our role as registered tax agents and accounting professionals is to guide UAE businesses in navigating the complexities of the new corporate tax regime.

One surprising trend we are seeing is that some free zone entities are electing to be taxed at the standard 9 percent corporate rate, even when they may be eligible for the zero percent rate on qualifying income.

While this may seem counterintuitive at first, there are compelling operational and financial reasons for this decision.

Access to the AED 375,000 Tax-Free Threshold

By electing to be taxed, companies can still benefit from the standard AED 375,000 exemption on taxable profits. This threshold applies to all taxable entities, meaning the first AED 375,000 of profits remains untaxed, providing immediate financial benefit.

Tax Group Formation for Simplified Compliance

Electing entities gain the ability to form tax groups with other UAE-based companies. This consolidation allows for a single tax return to be filed across the group and reduces administrative burdens, especially with regard to transfer pricing documentation and intra-group transactions.

Restructuring and Asset Transfers Within a Qualifying Group

Companies within a qualifying group can take advantage of tax-neutral restructuring provisions. This is particularly beneficial for businesses undergoing internal reorganisation or preparing for future investment or divestment activities.

Eligibility for Small Business Relief

Companies with annual revenue below AED 3 million may still qualify for the Small Business Relief scheme, even if they have opted into taxation. This provides the dual benefit of operational flexibility and potential zero percent tax liability for smaller entities.

Enhanced Group Efficiency Through Loss Transfers

Taxable free zone companies can transfer losses to other group members, optimising the group’s overall tax position. This mechanism is especially useful for businesses in growth phases or undergoing investment cycles that lead to initial losses.

Improved Financial Standing and Credibility

Being recognised as a tax-paying business enhances trust and credibility in the eyes of banks, institutional investors, and international partners. It can also help in accessing double tax treaty benefits, which can reduce withholding taxes on foreign-sourced income.

Certainty and Readiness for the Future

Electing into taxation eliminates the ambiguity around qualifying income and simplifies audit processes. It also positions the business more favourably for potential mergers or acquisitions and any future changes to free zone tax exemptions.

In conclusion, opting into the 9 percent UAE corporate tax rate is not merely a compliance decision. For many free zone companies, it is a proactive strategy that supports growth, strengthens governance, and improves global competitiveness.