If you're setting up a Free Zone company in Dubai, you've probably heard about the 2025 tax update. While Free Zones still offer 0% tax, the rules have changed—and not knowing them could cost you.
What Changed in 2025?
Previously, Free Zone companies enjoyed automatic tax exemptions with minimal requirements. In 2025, the UAE introduced stricter economic substance rules to qualify for 0% tax.
The New Requirements
To qualify for 0% tax, Free Zone businesses must now:
1. Maintain Adequate Substance
You need a real, physical office—not just a flexi-desk or P.O. Box.
2. Employ Qualified Staff
You must have employees in the UAE who are involved in core business activities.
3. Incur Adequate Operating Expenses
Your business must have genuine operational costs in the UAE.
4. Conduct Core Income-Generating Activities (CIGA) in the UAE
This means your main business operations must happen in the UAE—not just administrative tasks.
What This Means for Different Business Types
E-Commerce & Online Businesses
If you run an online store, you need to prove that:
- Your website is managed from the UAE
- Customer service or fulfillment happens locally
- Key decisions are made in the UAE
Pro Tip: Hiring a local team or using UAE-based warehousing can help meet substance requirements.
Consulting & Professional Services
Consultants must show:
- Client meetings and work are conducted from the UAE
- Contracts are signed and managed locally
- Core expertise resides in the UAE
Pro Tip: Maintain records of UAE-based client interactions and invoices.
Trading & Import/Export
Trading companies need:
- A physical office with staff
- Inventory or logistics managed in the UAE
- Contracts negotiated locally
Pro Tip: Use UAE suppliers or warehouses to strengthen your case.
What Happens If You Don't Comply?
If you fail to meet substance requirements, your Free Zone company may:
- Lose its 0% tax exemption
- Be subject to 9% corporate tax
- Face penalties or audits
How to Ensure Compliance
Step 1: Upgrade Your Office Setup
Switch from a flexi-desk to a dedicated office if you haven't already.
Step 2: Hire Local Staff
Even one full-time employee can help meet substance requirements.
Step 3: Keep Detailed Records
Document everything:
- Office lease agreements
- Employment contracts
- Invoices and expenses
- Proof of UAE-based operations
Step 4: Work with Experts
Navigating these rules can be tricky. A corporate services provider like Core Bridge can ensure you stay compliant.
The Silver Lining
While the 2025 update adds complexity, it also legitimizes Free Zone businesses. By meeting these requirements, you:
- Protect your 0% tax status
- Build a credible, sustainable business
- Gain confidence from clients and investors
Common Mistakes to Avoid
Mistake 1: Using a Virtual Office
Virtual offices no longer qualify for tax exemptions.
Mistake 2: Outsourcing All Operations
If all your work happens outside the UAE, you won't meet substance requirements.
Mistake 3: Ignoring Compliance Until It's Too Late
Waiting until tax audits start is risky. Get compliant now.
Is a Free Zone Still Worth It?
Absolutely. Despite the new rules, Free Zones still offer:
- 0% tax (if compliant)
- 100% foreign ownership
- Fast setup (1-2 weeks)
- Full profit repatriation
The key is setting up correctly from day one.
How Core Bridge Can Help
At Core Bridge, we help businesses:
- Choose the right Free Zone for their industry
- Meet economic substance requirements
- Stay compliant with UAE tax laws
Need help navigating the 2025 update? Contact us for a free consultation.
The Bottom Line
The 2025 Free Zone tax update isn't a dealbreaker—it's a wake-up call. By maintaining real substance in the UAE, you can still enjoy 0% tax and all the benefits of a Free Zone company.
Don't risk non-compliance. Get expert guidance and set up your business the right way.