Free zone company selling to mainland customers
My free zone company wants to sell to a mainland company. Will I lose my 0% tax rate?
The situation
Income from mainland customers is generally non-qualifying unless it fits a specific rule. A small amount of non-qualifying income is tolerated under a de minimis limit.
The law
- Art 18, Federal Decree-Law 47 of 2022: Qualifying income conditions for the 0% rate
- Cabinet Decision 100 of 2023 on Qualifying Income: Non-qualifying revenue must not exceed 5 percent of total revenue or AED 5 million, whichever is lower
What it means for you
Track mainland revenue separately in the books. Example: total revenue AED 20 million and mainland revenue AED 800,000. The limit is the lower of 5 percent (AED 1 million) and AED 5 million, so you are inside it. If mainland sales grew to AED 1.5 million you would breach it and lose the status for that year and the next four. Some groups set up a mainland company for local sales.
What to do
- Tag every invoice by customer location and type.
- Compute non-qualifying revenue each quarter.
- Compare it with 5 percent of revenue and AED 5 million.
- Restructure before year end if close to the limit.
Check the current qualifying activity list and de minimis rule in the latest Cabinet and Ministerial Decisions before relying on a figure.
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