Since the UAE’s 9% corporate tax framework came into full effect, a compliance gap has quietly widened across the business community. Many entrepreneurs and business owners operating in the country remain unknowingly exposed to liabilities they assumed did not apply to them, and by the time the exposure surfaces, the liability has already accumulated.
That is the assessment of Peter Ivantsov, Managing Partner of GCG Structuring, a Dubai-based corporate structuring firm. Having reviewed hundreds of business structures since the tax rollout, Ivantsov identifies a consistent pattern: businesses set up before corporate tax was introduced are operating with structures that were never designed for the current regulatory environment.
“The most dangerous assumption we see is that a free zone license automatically means zero tax. That is not how the Qualifying Free Zone Person rules work. There are substance requirements, income conditions, and compliance obligations that most businesses simply are not aware of,” he says.
The Qualifying Free Zone Person, or QFZP, designation is the mechanism through which free zone companies access the 0% tax rate. Qualifying for it requires deriving the right categories of income, maintaining demonstrable economic substance in the UAE, and meeting transfer pricing documentation standards. Many businesses, Ivantsov notes, fail one or more of these tests without realising it.
The Five Errors Leaving Businesses Exposed
Based on its client reviews, GCG Structuring has identified five recurring compliance failures among UAE-based businesses:
- Assuming free zone registration equals automatic tax exemption. Free zone companies must actively meet QFZP criteria to access the 0% rate. Registration alone does not confer the status.
- Insufficient economic substance. The UAE requires businesses to demonstrate genuine operational activity in their registered jurisdiction. A trade license and a registered address are not sufficient. Companies with minimal local presence or directors who are never physically in the UAE are increasingly flagged during compliance reviews.
- Mixing qualifying and non-qualifying income within a single entity. When a free zone entity earns income from mainland UAE clients or from activities outside its licensed scope, it risks losing QFZP status entirely for that tax period, with the 9% rate then applying to all income, not just the non-qualifying portion.
- Failing to register for corporate tax on time. All UAE businesses, including those expecting to pay zero tax, are required to register with the Federal Tax Authority and submit annual returns. Late registration and missed filings carry administrative penalties.
- Outdated structures that predate the tax framework. Many companies were set up between 2018 and 2022, before corporate tax was introduced. Structures that made commercial sense then may no longer be compliant or efficient under the current framework.
The issue extends beyond free zone operators. Mainland companies, holding structures, and multi-entity groups each carry their own set of obligations that require deliberate planning. “The entrepreneurs who are protected are the ones who built the right structure from the start and kept it properly maintained. Those who took shortcuts at setup are now having to fix expensive problems. The tax framework is no longer new. There is no grace period left,” Ivantsov concludes.
(All views and analysis in this article are sourced from GCG Structuring’s expert commentary and represent the views of Peter Ivantsov alone.)
