Our free zone company opened a mainland branch — how is that branch actually taxed?

Many free zone owners assume the 0% rate covers the whole company's activity wherever it operates, but that's not how it works. When a Qualifying Free Zone Person opens a mainland branch — whether an actual permanent establishment or a deemed domestic permanent establishment — that branch's income is taxed at the standard 9% Corporate Tax rate, while the qualifying free zone income itself can still benefit from 0% if it meets the qualifying income conditions.

The harder part in practice is attributing profit between the branch and the free zone activity in a way that reflects economic reality. The accepted approach is a functional analysis: identifying the functions each part performs, the assets it uses, and the risks it bears, then setting an arm's-length compensation for each. Expenses that can't be directly attributed are allocated on a fair basis, and a pro-rata allocation based on revenue is generally accepted as reasonable.

RASEEKH helps Qualifying Free Zone Persons build a documented profit-attribution model between the mainland branch and the free zone activity, protecting the 0% rate on the portion that genuinely earns it — without exposing the whole entity to a loss of eligibility over undocumented overlap between the two.