Same IFRS standards, different tax rules, different regulators, different audit requirements. Here's what actually changes when you set up in a free zone versus the mainland.
Free zone and mainland companies in the UAE both follow International Financial Reporting Standards (IFRS) for financial statement preparation and are both subject to UAE Corporate Tax under Federal Decree-Law No. 47 of 2022. The accounting standards are the same — IFRS or IFRS for SMEs — regardless of jurisdiction. The differences are in tax treatment, regulatory reporting, and compliance obligations. A mainland LLC reports to the Department of Economic Development (DED) and pays 9% corporate tax on taxable income above AED 375,000. A free zone company reports to its free zone authority and may qualify for a 0% corporate tax rate under the Qualifying Free Zone Person (QFZP) regime if it meets substance requirements, the de minimis revenue test, and earns qualifying income from qualifying activities. TruAccountants manages accounting for both structures — and for groups that combine both — from AED 1,500 per month.
| Area | Free Zone Company | Mainland LLC |
|---|---|---|
| Accounting standards | IFRS / IFRS for SMEs | IFRS / IFRS for SMEs |
| Corporate Tax rate | 0% on qualifying income (QFZP) or 9% on non-qualifying income | 9% on taxable income above AED 375,000 |
| QFZP eligibility | Must meet substance, de minimis (non-qualifying revenue < AED 5M or 5% of total), and qualifying activity requirements | Not applicable — mainland entities cannot claim QFZP |
| VAT registration | Mandatory if taxable supplies > AED 375,000. Intra-free zone supplies to designated zones may be zero-rated. | Mandatory if taxable supplies > AED 375,000. Standard 5% on domestic supplies. |
| Audit requirement | Required by most free zone authorities for licence renewal (JAFZA, DMCC, DAFZA, IFZA, DIFC) | Required for LLCs (Commercial Companies Law), PJSCs, and branches of foreign companies |
| Regulator | Free zone authority (e.g., DMCC, JAFZA, DAFZA) | Department of Economic Development (DED) |
| Annual returns | Free zone annual return + audited financials for renewal | DED licence renewal + any required DED filings |
| ESR reporting | Required if conducting relevant activities | Required if conducting relevant activities |
| UBO filing | Required | Required |
| Transfer pricing | Required for all related-party transactions (including mainland affiliates) | Required for all related-party transactions (including free zone affiliates) |
| Ownership | 100% foreign ownership | 100% foreign ownership (since 2021 amendments) |
| Trading within UAE | Cannot directly sell to UAE mainland customers (need mainland distribution) | Full access to UAE domestic market |
If claiming the 0% QFZP rate, the company must separately track qualifying income (from qualifying activities with qualifying persons) and non-qualifying income. The chart of accounts and reporting must support this split — it's not enough to calculate it at year-end. The de minimis test (non-qualifying revenue must not exceed AED 5 million or 5% of total) must be monitored throughout the year.
No income segregation required. The tax computation starts from accounting profit (per audited IFRS financials), adds back non-deductible expenses, deducts exempt income, and applies the 9% rate to taxable income above AED 375,000. The main complexity is in correctly identifying non-deductible items (entertainment, penalties, related-party adjustments).
QFZP requires adequate substance in the free zone: qualified employees, operating expenditure, and decision-making within the zone. The financial records must evidence this — staff on the free zone entity's payroll, office lease in the zone, and board minutes showing decisions made from the zone office.
Mainland entities don't have a tax-driven substance test (unless ESR applies to their activity type). The accounting records don't need to separately evidence substance in a specific location.
Supplies between entities within a designated free zone (e.g., JAFZA) can be treated as outside UAE VAT scope if the goods don't enter mainland UAE. The accounting system must correctly classify intra-zone vs zone-to-mainland transactions — getting this wrong means over- or under-charging VAT.
Domestic B2B and B2C supplies at 5%. Zero-rated for exports and certain categories (healthcare, education, first residential supply). The classification is simpler but the volume of transactions is typically higher.
Tell us your structure. We'll set up the accounting to handle the tax, the audit, and the group reporting — correctly from the start.
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