My company is in a free zone — does that mean all its income gets the 0% Corporate Tax rate?

Many free zone business owners assume simply being licensed there guarantees a 0% Corporate Tax rate. In reality, the 0% rate applies only to "Qualifying Income" earned by a company that meets the conditions of a "Qualifying Free Zone Person." That includes income from dealing with other free zone persons (where they're the beneficial recipient of the service), and income from specific Qualifying Activities such as manufacturing, trading of Qualifying Commodities, fund management, shipping, and headquarter/treasury services to related parties, among other activities set out in a dedicated Ministerial Decision.

On the other side, there are explicitly "Excluded Activities" that don't count as Qualifying Income even for an otherwise-qualifying company — dealing with natural persons (individuals) in most cases, banking and insurance activities, most forms of financing and leasing, and owning or exploiting immovable property outside free zones. And if your non-qualifying income exceeds a certain threshold — the lower of a fixed amount or a small percentage of total revenue — you lose Qualifying Free Zone Person status for the company as a whole, not just for the excess portion.

Even meeting the activity and income conditions isn't the full picture: you also need genuine economic substance in the free zone (real employees, assets, and operating expenditure tied to the activity), you must apply the arm's length principle to related-party dealings, and you need audited financial statements. RASEEKH can review your company's income line by line and clarify exactly which portion genuinely qualifies for 0% and which is taxed at the standard rate.