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Dubai: Will free zone firms opening offices in mainland be subject to 9% corporate tax?
Under the new law, businesses in the free zone can apply for a DET licence to open a branch in mainland Dubai or seek a permit for specific activities
- PUBLISHED: Wed 19 Mar 2025, 1:10 PM
Dubai government’s landmark decision to allow free zone companies to open branches in the mainland after obtaining a licence from the Department of Economy and Tourism (DET) will provide “unprecedented operational flexibility” and opportunities to tap bigger customer base in mainland Dubai with ease, say tax and legal experts.
The UAE tax law allowed free zone firms to open branches in the mainland, but the number of activities were very limited. This new law will expand the scope and increase the number of activities that branches can perform.
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However, free zone companies that will branch out to the mainland could be subject to a nine per cent corporate tax.
“This is a game changer for Dubai since it will provide immense flexibility to several free zone companies to undertake permissible business activities in mainland Dubai with ease,” said Nirav Rajput, partner, Aurifer Middle East Tax.
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“Free zone companies can now expand operations in mainland Dubai once approved by the DET. However, such mainland business operations will be subject to corporate tax at 9 per cent. Furthermore, the mainland branches will need to prepare and maintain separate financial statements and meet all local, federal, and regulatory compliance requirements,” said Rajput
The UAE’s Corporate Tax Law allows a qualifying free zone person to benefit from a 0 per cent corporate tax rate on their qualifying income. The other income, which is not qualifying income, is subject to corporate tax at the standard rate of 9 per cent.
Under the new Dubai law, businesses in the free zone can apply for a DET licence to open a branch in mainland Dubai or seek a permit for specific activities. DET will release a list of permitted activities in 6 months.
The provisions of this new resolution apply to all free zone establishments seeking to operate outside their designated zones, with the exception of financial institutions licensed within the Dubai International Financial Centre (DIFC).
Nirav Shah, director of Fame Advisory DMCC, said the new law will allow a lot of “flexibility” for companies registered in the free zones to reach out to the mainland market as an extension of their operations.
Blanket approval
Lara Barbary, partner at BSA Law, said Dubai's free zones have long been a magnet for international businesses due to a host of benefits including tax exemptions, full foreign ownership, and streamlined customs procedures.
“However, the geographical limitations have often been a barrier to further growth. Resolution No. 11 of 2025 dismantles that boundary, offering unprecedented operational flexibility,” she added.
The updated policy is accompanied by important compliance obligations.
“Establishments operating beyond their free zone boundaries are required to comply with all relevant federal and local laws governing their activities and to maintain distinct financial records for operations conducted outside the free zone,” Barbary added.
Rajput added that in general, free zone companies have restricted market access as they operate in the same licensed free zone.
“However, upon obtaining permission from the free zone regulator, the free zone business could establish a branch office in mainland Dubai after obtaining further approvals from the DET. The new Executive Resolution No. 11/2025 effectively provides blanket approval to free zone companies in Dubai to set up shop in mainland Dubai, subject to getting approval. However, the business activity conducted by the free zone entity must be those that are listed and approved by the DET,” he added.
Rajput also says this new policy “will certainly lead to an increase in investments in mainland Dubai, boosting the economy and creating employment.”
This will also lead to an increase in tax revenues for public sector entities.
Tax benefits
Shah added that these new changes are for the Emirate of Dubai, thus it does not change requirements from other federal laws' perspective.
“For example, tax law prescribes certain requirements for substance to be created in the free zone. This will stay and will not change due to the flexibility offered" he said.
Furthermore, he suggested that it would be a lot more beneficial if Dubai moves to a common authority to issue company licences as setting up branches comes at additional costs only.
“If we move to a common authority which issues licences, it may streamline lots of processes, and also offer cost-benefit to companies operating in Dubai. The need is to rationalise the applicable costs of doing business and make it more attractive, which will further boost overall business environment and employment opportunities,” Shah added.
