Qualifying income
0% · From qualifying activities or transactions with other free zone persons
Qualifying Free Zone Person (QFZP) in the UAE – 0% Corporate Tax Rules
A Qualifying Free Zone Person (QFZP) is a UAE free zone company that meets every condition of Article 18 of the Corporate Tax Law, so it pays 0% corporate tax on qualifying income and 9% on other taxable income. It needs adequate substance, qualifying income, non-qualifying revenue within the lower of 5% or AED 5 million, arm's-length pricing and annual audited accounts.
- Ministry of Economy and Tourism approved auditor
- 500+ clients
- Dubai & Abu Dhabi
A free zone licence alone does not guarantee the 0% corporate tax rate. Each year, a free zone company must show that its activities, customers, income, substance and documents meet the QFZP conditions, and a single failure can cost the 0% rate for five years.
SGA World helps free zone companies in DMCC, JAFZA, DAFZA, IFZA, Meydan, RAKEZ, ADGM and other UAE free zones assess, protect and document their QFZP status, from revenue mapping and the de minimis test to audited financial statements and transfer pricing.
- Tax on qualifying income
- 0%
- Tax on other taxable income
- 9%
- De minimis limit, whichever is lower
- AED 5M / 5%
- Status lost after one failure
- 5 years
At a glance
QFZP Rules: Key Facts
- 0% rate: only on qualifying income of a company meeting every condition.
- 9% rate: on other taxable income, with no AED 375,000 band.
- De minimis: non-qualifying revenue below the lower of 5% or AED 5 million.
- Audit: mandatory every year, whatever the revenue.
- One failure: loses the 0% rate for five tax periods.
- New in 2026: Designated Zone distributors need an AUP report.
The 0% myth
Are UAE Free Zone Companies Tax-Free?
Not automatically. Before corporate tax, free zone companies enjoyed long tax holidays from their free zone authority. Since 1 June 2023, every free zone company is within the UAE corporate tax regime: it must register with the FTA, keep audited accounts and file a return every year.
The 0% rate is now conditional. Only a free zone company that qualifies as a QFZP pays 0%, and only on its qualifying income. A free zone company that is not a QFZP pays the same rates as a mainland company: 0% on the first AED 375,000 of taxable income and 9% above.
QFZP basics
What Is a Qualifying Free Zone Person?
A Qualifying Free Zone Person is a juridical person incorporated, established or registered in a UAE free zone that meets the conditions in Article 18 of Federal Decree-Law No. 47 of 2022 and its implementing decisions. It can be:
- A company incorporated in a UAE free zone
- A branch of a UAE or foreign company registered in a free zone
- A free zone authority or government-controlled entity in a free zone
An individual or an unincorporated partnership cannot be a QFZP just because it trades from a free zone.
- 0% corporate tax on qualifying income
- 9% on taxable income that is not qualifying income
- No AED 375,000 0% band on non-qualifying income
- QFZP status is not an election; it depends on meeting the conditions
At a glance
How a QFZP Is Taxed
Non-qualifying revenue within the de minimis limit
0% · Up to the lower of 5% of total revenue or AED 5 million
Income of a domestic or foreign permanent establishment
9% · Excluded from the de minimis calculation
Most immovable-property income
9% · Except commercial property in a free zone let to free zone persons
Non-qualifying intellectual property income
9% · Trademarks, brands and other marketing IP
Qualifying intellectual property income
0% (nexus portion) · Only the share supported by qualifying R&D spend
Comparison
QFZP vs Non-QFZP Free Zone Company vs Mainland Company
| Point | QFZP | Free zone company (not QFZP) | Mainland company |
|---|---|---|---|
| Rate on qualifying income | 0% | Not applicable | Not applicable |
| Rate on other taxable income | 9% (no AED 375,000 band) | 0% up to AED 375,000, 9% above | 0% up to AED 375,000, 9% above |
| Corporate tax registration | Yes | Yes | Yes |
| Annual return | Yes | Yes | Yes |
| Audited financial statements | Mandatory | Only if revenue above AED 50 million | Only if revenue above AED 50 million |
| Small Business Relief available? | No | Yes, if revenue up to AED 3 million | Yes, if revenue up to AED 3 million |
| Sales to UAE mainland customers | Qualifying only for listed activities | Taxed normally | Taxed normally |
| Substance requirement | Adequate substance in the free zone | None specific to the regime | None specific to the regime |
Comparison under Federal Decree-Law No. 47 of 2022 and its implementing decisions. A QFZP can still be the better choice even with 9% on some income; we model both before you decide.
Eight conditions
What Are the Conditions for QFZP Status?
A free zone person must meet every condition for the whole tax period. Failing any one of them removes the 0% rate.
Step
Be a free zone person
Incorporated, established or registered in a recognised UAE free zone. A Designated Zone is a narrower customs concept that matters for distribution.
Step
Maintain adequate substance
Core income-generating activities (CIGA) carried out in the free zone, with adequate assets, qualified full-time staff and operating expenditure: the economic substance test.
Step
Derive qualifying income
Revenue mapped and separated into qualifying income, de minimis revenue and income taxed at 9% under special rules.
Step
Meet the de minimis test
Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million in the tax period.
Step
Not elect the standard regime
A free zone person that elects to be taxed under the ordinary rules gives up QFZP status.
Step
Apply arm's-length pricing
Transactions with related parties and connected persons priced as independent parties would agree.
Step
Keep transfer pricing documents
Evidence supporting related-party pricing, plus a Master File and Local File where the thresholds are met.
Step
Have audited financial statements
Mandatory for every QFZP whatever its revenue, under Ministerial Decision No. 84 of 2025.
Qualifying income
What Income Can Qualify for the 0% Rate?
Under Cabinet Decision No. 100 of 2023, qualifying income can come from four sources:
Transactions with another free zone person
Income qualifies where the transaction is not an excluded activity and the other free zone person is the beneficial recipient. The activity does not need to be on the qualifying list; for example, professional services to a free zone company can qualify.
Transactions with mainland and overseas customers
Income from a non-free zone person, whether a mainland UAE or foreign customer, qualifies only when it comes from a listed qualifying activity that is not excluded. Mainland sales are not automatically non-qualifying, and overseas sales are not automatically qualifying.
Qualifying intellectual property
Income from patents, copyrighted software and similar rights can qualify under the OECD nexus formula, for the portion supported by qualifying R&D spending. Trademarks and brands do not qualify.
Other income within the de minimis limit
Other income, including some excluded activities, is treated as qualifying if total non-qualifying revenue stays within the de minimis limit. This does not cover permanent establishment, property or non-qualifying IP income.
Ministerial Decision No. 229 of 2025
What Are the Qualifying Activities?
Ministerial Decision No. 229 of 2025 replaced Decision No. 265 of 2023 with effect from 1 June 2023. It lists 14 qualifying activities:
- Manufacturing of goods or materials
- Processing of goods or materials
- Trading of qualifying commodities
- Holding shares and other securities for investment
- Ownership, management and operation of ships
- Reinsurance services
- Fund management services
- Wealth and investment management services
- Headquarter services to related parties
- Treasury and financing services to related parties or for own account
- Financing and leasing of aircraft
- Distribution of goods or materials in or from a Designated Zone
- Logistics services
- Activities ancillary to any of the above
Each activity has detailed conditions, and having the activity on your trade licence does not prove the income qualifies. Trading of qualifying commodities, for example, requires physical trading of commodities with a quoted price on a recognised exchange or price-reporting agency; the 2025 rules also cover environmental commodities such as carbon credits.
Excluded activities
Which Activities Are Excluded?
Income from excluded activities is non-qualifying and counts toward the de minimis limit, unless a specific exception applies.
Transactions with individuals
Excluded, with limited exceptions for some qualifying activities
Banking activities
Excluded
Insurance activities
Excluded, except reinsurance and other permitted activities
Finance and leasing
Excluded, except listed treasury, aircraft and related-party financing
Owning or exploiting immovable property
Excluded, except commercial property in a free zone let to free zone persons
Activities ancillary to an excluded activity
Excluded
Decision guide
QFZP Transaction Decision Table
A general guide only. Contracts, actual activities and customer status must be reviewed before taking a tax position.
Services to another free zone company
- Customer
- Free zone person (beneficial recipient)
- Usual result
- 0% if not an excluded activity
Manufacturing or processing sales
- Customer
- Mainland or overseas customer
- Usual result
- 0% as a qualifying activity
General trading of goods
- Customer
- Mainland customer
- Usual result
- Non-qualifying; counts toward de minimis
Consulting services
- Customer
- Mainland or overseas customer
- Usual result
- Non-qualifying; counts toward de minimis
Any sale
- Customer
- Individual (B2C)
- Usual result
- Excluded, with limited exceptions
Distribution from a Designated Zone
- Customer
- Reseller or processor
- Usual result
- 0% if conditions are met; AUP report from 2026
Rent from a free zone office
- Customer
- Free zone person
- Usual result
- 0% for commercial property let to free zone persons
Income of a mainland branch
- Customer
- Any
- Usual result
- 9%; outside the de minimis test
Mainland sales
Can a QFZP Sell to Mainland UAE Customers?
Yes, but the result depends on the activity. Many free zone companies sell into the UAE mainland, and this is where QFZP status is most often lost.
- Qualifying activity: sales from a listed activity, such as manufacturing, processing or distribution from a Designated Zone to a reseller, can be qualifying income even when the customer is on the mainland
- Other mainland sales: general trading, consulting and most services to mainland customers are non-qualifying revenue and count toward the de minimis limit
- Mainland branch or office: income of a domestic permanent establishment, such as a mainland branch, is taxed at 9% and kept outside the de minimis calculation
- Sales to individuals: B2C sales are excluded activities, with limited exceptions
A common structure is to keep the free zone company focused on qualifying activities and serve the mainland through a separate mainland company or branch. This needs careful transfer pricing between the two.
De minimis test
How Does the De Minimis Rule Work?
Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million in the tax period, as set out in Ministerial Decision No. 229 of 2025. The test uses revenue, not profit.
Example
- A free zone company has total revenue of AED 20 million
- 5% of AED 20 million is AED 1 million, which is lower than AED 5 million
- Non-qualifying revenue of AED 800,000 is within the limit, so the company stays a QFZP
- Non-qualifying revenue of AED 1.2 million breaches the limit, and the company loses QFZP status
Revenue of a permanent establishment, specified immovable property income and non-qualifying IP income are left out of both sides of the calculation and taxed separately at 9%.
QFZP review
Is Your Free Zone Company Still a QFZP?
We map every revenue stream, test the de minimis limit and check substance and transfer pricing before you file, so you know your corporate tax position in advance.
Our QFZP review covers
- Revenue mapping by customer and activity
- Qualifying vs non-qualifying income and de minimis test
- Substance review of staff, assets and expenses
- Related-party pricing and transfer pricing documents
- Audited financial statements and the AUP report where needed
New for 2026
Designated Zone Distributors Now Need an AUP Report
FTA Decision No. 6 of 2026 adds a new compliance step for QFZPs distributing goods in or from a Designated Zone, for tax periods starting on or after 1 January 2026.
- Who it applies to
- QFZPs relying on the Designated Zone distribution activity
- What is needed
- An agreed-upon procedures (AUP) report under ISRS 4400
- Who prepares it
- The company's external auditor or another UAE-licensed independent auditor
- What it tests
- Customer eligibility (resellers and processors) and import of goods through a Designated Zone
- Evidence reviewed
- Licences, agreements, invoices, customs declarations, bills of lading, inventory and warehouse records
- Deadline
- Submitted to the FTA within 30 days after the corporate tax return deadline
- If missed
- The distribution conditions are treated as not met and QFZP status is at risk
Full requirements: FTA Decision No. 6 of 2026. As a UAE audit firm, we can perform the AUP engagement alongside your annual audit.
Transfer pricing and audit
Transfer Pricing and Audit Requirements for a QFZP
Transactions with related parties and connected persons must be at arm's length. Prices, margins, interest, management fees, rent and royalties should reflect what independent parties would agree. A benchmarking study is not required for every transaction: support can come from internal comparables, database searches, valuations or third-party quotes. See our transfer pricing services and benchmarking studies.
A Master File and Local File are required where the statutory thresholds are met; below them, the FTA can still ask for evidence supporting related-party pricing.
Every QFZP must have audited financial statements under Ministerial Decision No. 84 of 2025, whatever its revenue. The audit should support the split between qualifying and non-qualifying revenue. As an audit firm in Dubai, we prepare the audit and corporate tax return together, through our corporate tax services.
Losing the 0% rate
What Happens If a Company Fails a QFZP Condition?
If a QFZP fails any condition during a tax period, it stops being a QFZP from the start of that tax period and for the following four tax periods. During those five years it is taxed under the standard regime: 0% on the first AED 375,000 and 9% above, on all its taxable income.
The company can only be tested again as a QFZP from the sixth tax period. One failure can therefore affect five years of tax, which is why QFZP status should be monitored during the year, not only when the return is prepared.
Documentation
Records a QFZP Should Keep
The FTA can ask a QFZP to prove each condition. Keep these records for at least seven years after the end of the tax period.
| Record | Why it matters |
|---|---|
| Revenue analysis by customer and activity | Supports the qualifying and de minimis calculation |
| Customer licences and declarations | Proves free zone status and beneficial-recipient status |
| Contracts, invoices and purchase orders | Shows the activity and who received the goods or services |
| Payroll, leases and asset registers | Evidence of adequate substance in the free zone |
| Customs and warehouse records | Supports Designated Zone distribution and imports |
| Transfer pricing files and benchmarking | Supports arm's-length related-party pricing |
| Audited financial statements and AUP report | Mandatory conditions for QFZP status |
Self-assessment
Do You Qualify as a QFZP? A 4-Step Self-Assessment
Step01
Check your entity
Confirm the company is incorporated or registered in a UAE free zone and has not elected the standard regime.
Step02
Test your substance
Check staff, premises, assets and spending in the free zone against your core income-generating activities.
Step03
Classify your revenue
Tag every revenue stream by customer type and activity: qualifying, excluded, permanent establishment, property or IP.
Step04
Run the de minimis test
Compare non-qualifying revenue with the lower of 5% of total revenue or AED 5 million; then confirm transfer pricing and the audit.
Checklist
Practical QFZP Eligibility Checklist
Before claiming the 0% rate, confirm that the company has:
- Verified that it is a free zone person
- Mapped every material revenue stream
- Identified each customer as a free zone person, mainland or overseas company, or individual
- Confirmed beneficial-recipient status where required
- Classified each activity as qualifying, excluded or neither
- Calculated the de minimis limit on revenue, not profit
- Separated permanent establishment, property and IP income
- Documented adequate staff, assets and operating expenditure
- Applied arm's-length pricing to related-party transactions
- Prepared transfer pricing documentation
- Arranged the annual audit, and the AUP report where applicable
- Agreed the corporate tax return to the audited financial statements
Glossary
QFZP Terms Explained
- Qualifying income
Income taxed at 0% for a QFZP, from qualifying activities or transactions with free zone persons.
- Qualifying activity
One of the 14 activities listed in Ministerial Decision No. 229 of 2025.
- Excluded activity
An activity whose income is non-qualifying, such as most transactions with individuals.
- De minimis
The limit on non-qualifying revenue: the lower of 5% of revenue or AED 5 million.
- Beneficial recipient
The free zone person that actually uses and benefits from goods or services.
- Adequate substance
Enough staff, assets and expenses in the free zone for the core activities.
- Designated Zone
A customs-controlled free zone listed for VAT and distribution purposes.
- AUP report
Agreed-upon procedures report under ISRS 4400 required for Designated Zone distributors from 2026.
How we help
How SGA World Supports Free Zone Companies
QFZP assessment
Eligibility review, revenue mapping, de minimis calculation and a written conclusion for your file.
Audit and AUP reports
Audited financial statements and the Designated Zone AUP report, prepared by a UAE audit firm.
Transfer pricing
Arm's-length reviews, benchmarking and documentation for related-party and connected-person transactions.
Substance review
Check of staff, assets, expenses and outsourcing against the adequate substance requirement.
Corporate tax return
Return preparation and filing on EmaraTax, with the qualifying and non-qualifying split supported.
Year-round monitoring
Quarterly checks of new contracts and customers, so a de minimis breach is caught early.
Location: Dubai
Dubai Office
Our Dubai office in The Exchange Tower, Business Bay is the central hub for our audit, accounting and tax services across the UAE.
Dubai
Office 1923, The Exchange Tower, Business Bay, Dubai
Abu Dhabi
Khalidiya Towers M-B6, W10, Al Bateen, Al Khalidiyah, Abu Dhabi
Talk to an auditor
Tell us your company type, jurisdiction and deadline. We will confirm the scope, timeline and fee.
- WhatsApp us+971 50 627 3556
- Call us+971 4 570 1795
- Email us[email protected]
- Book an appointmentChoose a time that suits you
Prefer a form? Send us a detailed enquiry.
Insights
Related guides
Who prepared this page
Written and reviewed by SGA World's audit and tax team
This guide is prepared by chartered accountants at SGA World Auditing Accounting L.L.C S.P.C in Business Bay, Dubai, a Ministry of Economy and Tourism approved audit firm, and checked against Federal Tax Authority legislation and guidance. It is reviewed whenever the rules change.
- Last reviewed 29 October 2026
- Chartered accountants from India and the UK
- FTA representation through Saif Chartered Accountants
Have a question about your company?
Tell us your activity, jurisdiction and deadline. A chartered accountant will reply.
Ask an expertFrequently asked questions
Qualifying Free Zone Person – FAQs
Short answers to the questions UAE businesses ask us most. Still unsure?
Talk to our team01.What is a Qualifying Free Zone Person?
A Qualifying Free Zone Person (QFZP) is a free zone company or branch that meets the conditions in Article 18 of the UAE Corporate Tax Law: adequate substance in the free zone, qualifying income, non-qualifying revenue within the de minimis limit, audited financial statements and compliance with transfer pricing rules. It pays 0% corporate tax on qualifying income and 9% on other taxable income.
02.Is every UAE free zone company automatically eligible for 0% corporate tax?
No. A free zone company must meet every QFZP condition for the whole tax period. Being incorporated in a free zone does not by itself guarantee the 0% rate.
03.What is the corporate tax rate for a Qualifying Free Zone Person?
0% on qualifying income and 9% on taxable income that is not qualifying income. A QFZP does not get the AED 375,000 0% band on its non-qualifying income.
04.What is the QFZP de minimis limit?
Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million in the tax period. The test is based on revenue, not profit.
05.What happens when the de minimis limit is exceeded?
The company loses QFZP status from the start of that tax period and for the following four tax periods, and is taxed under the standard corporate tax rules during that time.
06.Can income from mainland UAE customers qualify for 0%?
Yes, when it comes from a listed qualifying activity, such as manufacturing or Designated Zone distribution, and is not an excluded activity. Other mainland income counts toward the de minimis limit.
07.Is income from overseas customers automatically qualifying?
No. A foreign customer is a non-free zone person, so the income must come from a listed qualifying activity that is not excluded.
08.Can a free zone company sell to individuals and keep QFZP status?
Transactions with individuals are generally excluded activities, with limited exceptions. The revenue counts toward the de minimis limit, so significant B2C sales can cost the 0% rate.
09.Is an audit mandatory for a QFZP?
Yes. Every QFZP must have audited financial statements each year, whatever its revenue, under Ministerial Decision No. 84 of 2025.
10.Is a benchmarking study required for every related-party transaction?
No. Transactions must be at arm's length, but the support can be internal comparables, database searches, valuations or third-party quotes. A Master File and Local File are required only where the statutory thresholds are met.
11.Does every free zone distributor need an AUP report?
It applies to a QFZP relying on the qualifying activity of distributing goods in or from a Designated Zone, for tax periods starting on or after 1 January 2026, under FTA Decision No. 6 of 2026. The report is due 30 days after the corporate tax return deadline.
12.Does a QFZP need to register and file a corporate tax return?
Yes. A QFZP must register for corporate tax and file a return every year, even if all its income is taxed at 0%.
13.Can a QFZP claim Small Business Relief?
No. Qualifying Free Zone Persons cannot elect Small Business Relief. A free zone company would need to compare the two regimes before deciding.
14.Are free zone companies in Dubai tax-free?
No longer automatically. Since 1 June 2023 every free zone company is within UAE corporate tax. Only a company that qualifies as a QFZP pays 0%, and only on its qualifying income; others pay 9% on taxable income above AED 375,000.
15.Are freelancers in a free zone Qualifying Free Zone Persons?
No. A QFZP must be a juridical person such as a company or branch. A freelance permit holder is an individual, who is subject to corporate tax only if business turnover exceeds AED 1 million, under the standard rates.
16.Can a free zone branch of a mainland company be a QFZP?
A branch registered in a free zone can be a QFZP for its own free zone income if it meets all the conditions. The mainland company itself is taxed under the standard rules.
17.Can a free zone company choose to be taxed like a mainland company?
Yes. A free zone person can elect to be subject to the standard corporate tax regime. The election gives up QFZP status, so the impact should be modelled first.
18.Is rental income from free zone property taxed at 0%?
Only income from commercial property in a free zone let to other free zone persons can be qualifying income. Other immovable property income, such as residential property or property let to mainland tenants, is taxed at 9%.
19.How long does a company lose QFZP status after a breach?
For the tax period in which the breach happens and the following four tax periods, five years in total. It can qualify again from the sixth tax period if it meets all conditions.
