FTA Decision 15/2026: Corporate Tax Exemption for DIFC

FTA Decision No. 15 of 2026, issued under the UAE Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law), sets out the precise activities that free-zone and DIFC entities must perform to retain corporate-tax exemption and outlines the documentation and substance-based tests they must satisfy to remain compliant.

Related Services: Explore our Corporate Governance Framework and Corporate Governance Advisory services for practical legal support in this area.

WHAT SPECIFIC ACTIVITIES DOES FTA DECISION 15/2026 LIST AS QUALIFYING FOR CORPORATE-TAX EXEMPTION?

The decision's annex enumerates a limited set of income-generating activities that are treated as "qualifying" for the 0 % corporate-tax rate. These include:

• Provision of services to related parties that are themselves located within the same free zone or DIFC, provided the service is rendered wholly inside the jurisdiction and the recipient is a member of the same multinational group.
• International trade - the import, export, re-export, or transit of goods where the physical movement of the goods occurs outside the UAE and the contractual counterparty is non-resident.
• Holding of qualifying shares or securities - ownership of equity or debt instruments issued by entities that are not resident in the UAE, where the holding company does not engage in active trading of those securities.
• Ancillary support functions such as treasury, risk-management, or head-office services that are performed exclusively for the benefit of qualifying subsidiaries and are substantiated by adequate staff, premises, and operating expenses in the free zone/DIFC.

Conversely, the annex expressly excludes:

• Domestic trading with UAE-mainland customers.
• Services rendered to persons residing in the UAE outside the free zone/DIFC.
• Any activity that fails to meet the substance thresholds (see below).

To claim exemption, a taxpayer must map each revenue stream to the annex, verify that the underlying contracts and invoices reflect the qualifying nature of the activity, and retain evidence that the activity is performed wholly within the jurisdiction.

HOW DOES THE SUBSTANCE REQUIREMENT OPERATE UNDER FTA DECISION 15/2026?

Substance is the linchpin of the decision. The FTA requires that an entity demonstrate a genuine economic presence that is commensurate with the income it claims as exempt. The substance test comprises three pillars:

1. Workforce - a minimum number of full-time employees (or full-time equivalents) whose duties are directly linked to the qualifying activity. The decision does not prescribe a fixed headcount; instead, it looks at the ratio of staff costs to exempt income and whether the employees possess the qualifications necessary to perform the activity.
2. Premises - physical office or industrial space leased or owned in the free zone/DIFC that is used exclusively for the qualifying activity. Shared services centres must allocate a demonstrable portion of their floor space to each qualifying line of business.
3. Operating expenditure - recurring costs such as utilities, insurance, professional fees, and asset depreciation that are incurred locally and are proportionate to the level of exempt income.

The FTA may request timesheets, lease agreements, utility bills, asset registers, and payroll records to verify that the substance level is not merely nominal. Failure to meet any of these pillars can lead to the re-characterisation of exempt income as taxable, with associated penalties and interest under the Corporate Tax Law.

WHAT STEPS SHOULD DIFC AND FREE-ZONE COMPANIES TAKE TO ALIGN THEIR TAX PLANNING WITH FTA DECISION 15/2026?

Conduct a comprehensive activity-mapping exercise

Identify every revenue stream, classify it according to the annex, and flag any streams that fall into the excluded category or that lack sufficient substance. This mapping should be revisited quarterly to capture changes in business models.

Revise intercompany agreements and transfer-pricing documentation

Amend contracts to expressly state that services are performed for the benefit of the free-zone/DIFC entity, that the place of performance is within the jurisdiction, and that pricing follows the arm's-length principle. Prepare contemporaneous transfer-pricing studies that reference the OECD Guidelines as incorporated into UAE law, and retain them for at least five years.

Enhance operational record-keeping

Maintain a centralized repository of:

• Employment contracts, job descriptions, and payroll registers.
• Lease agreements, title deeds, and utility invoices.
• Asset registers detailing equipment, furniture, and IT infrastructure located in the free zone/DIFC.
• Board minutes and substance statements signed by an authorised director summarising workforce, premises, and expenditures for each qualifying activity.

Prepare an annual substance statement

Although the FTA does not prescribe a template, the statement should quantify:

• Number of full-time employees engaged in each qualifying activity.
• Total remuneration and benefits attributable to those employees.
• Square metres of premises allocated to the activity and associated rental costs.
• Direct operating expenses (utilities, insurance, professional fees) incurred locally.

A well-drafted statement enables the FTA to verify compliance swiftly during an audit.

Implement internal controls and review mechanisms

Designate a tax compliance officer or committee to oversee the mapping, documentation, and substance-testing processes. Conduct internal audits semi-annually and adjust policies promptly when gaps are identified.

HOW DOES FTA DECISION 15/2026 AFFECT COMPANIES THAT ARE NOT FORMALLY REGISTERED AS FREE-ZONE ENTITIES BUT OPERATE WITHIN THE DIFC?

Although the DIFC maintains its own regulatory regime, the FTA treats DIFC-registered companies as "free-zone persons" for corporate-tax purposes. Consequently, the same qualifying and excluded activity lists, substance thresholds, and documentation obligations apply. DIFC entities must therefore:

• Determine whether their income derives from qualifying activities as defined in the annex.
• Demonstrate sufficient substance in the DIFC, not merely a nominal presence.
• Maintain the five-year retention period for all supporting documents.

Failure to treat the DIFC as a free-zone person can result in the FTA denying exemption and assessing corporate tax at the standard 9 % rate, plus penalties and interest.

WHAT ARE THE CONSEQUENCES OF INCORRECTLY CLASSIFYING INCOME AS EXEMPT UNDER FTA DECISION 15/2026?

If the FTA discovers that income was wrongly claimed as exempt, it will:

1. Issue a tax assessment for the relevant period, applying the standard corporate-tax rate of 9 % to the re-characterised income.
2. Impose administrative penalties of up to 50 % of the unpaid tax, pursuant to Article 71 of the Corporate Tax Law.
3. Charge interest on the outstanding amount from the due date until payment is made, calculated at the rate prescribed by the Ministry of Finance.

In addition, the FTA may require the taxpayer to amend prior-year returns, submit a voluntary disclosure, and potentially face heightened scrutiny in future audits.

CAN A COMPANY RESTRUCTURE ITS OPERATIONS AFTER THE DECISION TO MAXIMISE EXEMPT INCOME WHILE REMAINING COMPLIANT?

Yes, provided the restructuring is grounded in genuine economic substance and not merely a tax-avoidance scheme. The FTA applies a "substance over form" test, examining whether the restructured entity:

• Performs the qualifying activity wholly within the free zone/DIFC.
• Employs adequate staff, incurs appropriate operating expenses, and holds necessary assets locally.
• Has a legitimate business purpose beyond tax reduction, such as operational efficiency, market expansion, or risk management.

Documentation supporting the restructuring-board resolutions, feasibility studies, updated organisational charts, and revised intercompany agreements-must be retained and made available to the FTA upon request.

WHAT PRACTICAL TIPS CAN HELP BUSINESSES MAINTAIN ONGOING COMPLIANCE WITH FTA DECISION 15/2026?

• Regular training - educate finance, legal, and operational teams on the qualifying activity list and substance requirements.
• Technology solutions - use ERP systems to tag transactions by activity type, generate real-time substance reports, and store supporting documents in a secure, searchable archive.
• External review - engage a qualified tax adviser or audit firm to perform an annual compliance check, especially before major transactions or restructuring events.
• Proactive disclosure - if a potential misclassification is identified, consider submitting a voluntary disclosure under the FTA's voluntary disclosure programme to mitigate penalties.
• Monitoring regulatory updates - stay alert to any future FTA decisions, guidance notes, or amendments to the Corporate Tax Law that may refine the qualifying activity list or substance thresholds.

By integrating these practices into their governance framework, DIFC and free-zone entities can preserve the benefits of FTA Decision 15/2026, minimise the risk of adverse tax assessments, and demonstrate a robust commitment to UAE tax compliance.

FREQUENTLY ASKED QUESTIONS

What specific income-generating activities are listed as qualifying for the 0 % corporate-tax exemption under FTA Decision 15/2026?

The annex limits qualifying activities to: (1) services provided to related parties within the same free zone or DIFC, performed wholly inside the jurisdiction; (2) international trade where goods move outside the UAE and the counterparty is non-resident; (3) holding qualifying shares or securities issued by non-UAE residents without active trading; and (4) ancillary support functions such as treasury, risk-management or head-office services rendered exclusively for qualifying subsidiaries, provided they are backed by adequate staff, premises and operating expenses in the free zone/DIFC.

How does the substance test work under FTA Decision 15/2026, and what evidence may the FTA request?

Substance requires a genuine economic presence matching the exempt-income claim, assessed through three pillars: workforce (sufficient qualified full-time staff linked to the activity), premises (dedicated physical space in the free zone/DIFC), and operating expenditure (local costs proportionate to exempt income). The FTA may ask for timesheets, lease agreements, utility bills, asset registers, payroll records, and similar documentation to verify that substance is not merely nominal.

What practical steps should DIFC and free-zone companies take to align their tax planning with FTA Decision 15/2026?

Companies should map every revenue stream to the annex, update inter-company agreements to reflect jurisdiction-specific performance and arm's-length pricing, keep centralized records of employment, leases, assets and board substance statements, prepare an annual substance statement quantifying staff, premises and expenses, and implement internal controls with periodic audits to ensure ongoing compliance.

How does FTA Decision 15/2026 treat entities that are registered in the DIFC but not formally classified as free-zone persons?

For corporate-tax purposes, the FTA treats DIFC-registered companies as "free-zone persons," so the same qualifying-activity list, excluded activities, substance thresholds and five-year document-retention obligations apply. DIFC entities must therefore demonstrate that their income derives from qualifying activities and that they maintain sufficient substance in the DIFC, otherwise exemption may be denied and tax assessed at the standard 9 % rate.

What are the consequences if income is incorrectly classified as exempt under FTA Decision 15/2026?

If the FTA finds that exempt status was wrongly claimed, it will re-characterise the income as taxable, apply the standard 9 % corporate-tax rate, impose administrative penalties of up to 50 % of the unpaid tax under Article 71 of the Corporate Tax Law, and charge interest on the outstanding amount from the due date. Additional penalties may apply for inadequate documentation or substance.

If your matter involves fta decision 15/2026 in the United Arab Emirates, you are welcome to request a consultation with Nour Attorneys. Our team can assess your position under the law currently in force and outline the options available to you. Request a consultation

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