TaxSavvyAE

Electing out of the free zone regime

Can I choose normal 9 percent tax so I can use Small Business Relief instead?

The situation

A Qualifying Free Zone Person can elect to be taxed at the standard rates. Once out, the business is taxed like a mainland company and may use Small Business Relief if revenue is within AED 3 million.

The law

  • Art 19, Federal Decree-Law 47 of 2022: Election to apply standard Corporate Tax rates
  • Ministerial Decision 73 of 2023 as amended by Ministerial Decision 131 of 2026: Small Business Relief for revenue up to AED 3 million, tax periods ending by 31 December 2029

What it means for you

This is common for small zone consultancies that cannot prove substance or qualifying income. Example: a zone company with AED 1.5 million revenue and AED 600,000 profit could pay nothing under Small Business Relief instead of risking a failed 0% claim. The election is binding for a period, so do not flip each year. Note that a Qualifying Free Zone Person itself cannot use Small Business Relief.

What to do

  1. Compare tax under 0% status, standard rate and Small Business Relief.
  2. Check revenue in this and all earlier periods stays within AED 3 million.
  3. Make the election in the return.
  4. Keep records showing the revenue test.

We can do this for youFree zone company setup: choosing between DMCC, JAFZA, IFZA, Meydan, RAKEZ, ADGM and others, licence, visas and tax status: AED 3,500

Related