Understanding the Qualifying Free Zone Person (QFZP) in UAE Corporate Tax Law

Free zones were long described as “tax-free”. Under UAE corporate tax, that is only true for a Qualifying Free Zone Person (QFZP), and only on qualifying income. This guide explains what a QFZP is, the conditions, what counts as qualifying income and what happens if a condition is missed. For a full assessment, see our QFZP services.

Protect your 0% rate: get a QFZP review from our corporate tax services for free zone companies.

What Is a Qualifying Free Zone Person (QFZP)?

A QFZP is a free zone person, a company or branch registered in a UAE free zone, that meets the conditions in Article 18 of Federal Decree-Law No. 47 of 2022. A QFZP is taxed at:

Income	Corporate tax rate
Qualifying income	0%
Taxable income that is not qualifying income	9%

A free zone company that is not a QFZP is taxed like a mainland company: 0% on the first AED 375,000 of taxable income and 9% above.

Key Conditions to Qualify as a QFZP

A free zone person must meet all of these conditions throughout the tax period:

Condition	What it means
Adequate substance	Core income-generating activities carried out in the free zone, with enough staff, assets and expenses
Qualifying income	Earns income from qualifying activities and permitted transactions
De minimis limit	Non-qualifying revenue stays within the lower of 5% of total revenue or AED 5 million
No election for standard rates	Has not chosen to be taxed at the standard rates
Transfer pricing	Complies with the arm’s length principle and transfer pricing documentation rules
Audited accounts	Prepares and maintains audited financial statements

What Is Considered Qualifying Income?

Qualifying income generally includes income from:

• transactions with other free zone persons, unless they come from excluded activities;
• qualifying activities carried out with non-free zone persons, such as manufacturing, trading in qualifying commodities, logistics, holding shares, headquarter and treasury services, as listed in Ministerial Decision No. 229 of 2025, which replaced Decision No. 265 of 2023;
• certain income from qualifying intellectual property.

Income from excluded activities, such as most transactions with natural persons and certain banking, insurance and leasing activities, is non-qualifying unless an exception applies. Income from mainland immovable property is also treated separately.

How Does the De Minimis Rule Work?

A QFZP can earn a small amount of non-qualifying revenue without losing its status, as long as it stays within the lower of:

• 5% of total revenue, or
• AED 5 million.

Example: a free zone company with AED 40 million of revenue can earn up to AED 2 million of non-qualifying revenue (5% is lower than AED 5 million). At AED 2.1 million it fails the test.

Expert tip: track non-qualifying revenue every quarter. A de minimis breach found at the year end affects the whole tax period, and the following four.

What Happens If a QFZP Fails to Meet Conditions?

If a free zone person fails any condition during a tax period, it ceases to be a QFZP for that tax period and the following four tax periods: five years in total. During that time all its taxable income is taxed at the standard rates.

Why a QFZP Assessment Is Crucial for Free Zone Businesses

Every free zone company should review, at least annually:

1. which revenue streams are qualifying, non-qualifying or excluded;
2. whether non-qualifying revenue stays within the de minimis limit;
3. whether staff, premises and spending meet the substance requirement;
4. whether related-party pricing follows transfer pricing rules;
5. whether audited accounts will be ready in time.

Get Expert Help on QFZP Compliance

SGA World maps your revenue, tests the de minimis limit, reviews substance and transfer pricing, and prepares your corporate tax return. Read our full QFZP guide and services for more detail.