Key takeaways
- A UAE free zone company pays 0% corporate tax only on its qualifying income; taxable income that isn't qualifying income is taxed at 9% (Federal Decree-Law No. 47 of 2022, Article 3).
- Qualifying income has four sources: transactions with other free zone persons (except excluded activities), transactions with non-free zone customers but only for qualifying activities, qualifying intellectual property income, and other income that stays inside the de minimis limit (Cabinet Decision No. 100 of 2023, Article 3).
- The de minimis limit for a free zone company is the lower of 5% of total revenue or AED 5,000,000 of non-qualifying revenue in a tax period (Ministerial Decision No. 229 of 2025, Article 3, as of October 2026).
- A free zone company that breaches a condition stops being a Qualifying Free Zone Person from the start of that tax period, and Ministerial Decision No. 229 of 2025 says the loss of status runs for four more periods after it.
- General consulting, marketing and similar services are not on the qualifying activities list, so a free zone company that sells them to mainland customers should expect that revenue to count as non-qualifying.
What counts as qualifying income for a free zone company?
Qualifying income is the income of a Qualifying Free Zone Person that Cabinet Decision No. 100 of 2023 allows to be taxed at 0%. It comes from four places, and income attributable to a permanent establishment or to certain property is carved out of all of them.
| Source of income | Counts as qualifying income when | Source |
|---|---|---|
| Transactions with a free zone person | The other free zone person is the beneficial recipient of the goods or services, and the activity is not an excluded activity | Cabinet Decision No. 100 of 2023, Article 3(1)(a) and 3(2) |
| Transactions with a non-free zone person | The activity is a qualifying activity and not an excluded activity | Article 3(1)(b) |
| Qualifying intellectual property | The income is from qualifying IP (patents, copyrighted software and similar rights; trademarks are not covered), calculated under the Minister's decision | Articles 1, 3(1)(c) and 7 |
| Other income | Total non-qualifying revenue stays inside the de minimis limit | Articles 3(1)(d) and 4 |
Three things never qualify: income attributable to a domestic or foreign permanent establishment, income from immovable property that Article 6 treats as taxable, and income Article 7(2) treats as taxable. Those go to the 9% bucket.
Which activities are qualifying activities?
Qualifying activities are the 14 activity types listed in Ministerial Decision No. 229 of 2025, which replaced Ministerial Decision No. 265 of 2023 after the Ministry of Finance announced it on 3 September 2025. Income from a non-free zone customer only qualifies if it comes from one of them.
| Qualifying activity | Notes from the decision |
|---|---|
| Manufacturing of goods or materials | None |
| Processing of goods or materials | None |
| Trading of qualifying commodities | Metals, minerals, industrial chemicals, energy, agricultural and environmental commodities, with a quoted price |
| Holding shares and other securities | Investment purposes only |
| Ownership, management and operation of ships | Natural person customers allowed |
| Reinsurance services | Insurance more broadly is excluded |
| Fund management services | Natural person customers allowed |
| Wealth and investment management services | Natural person customers allowed |
| Headquarter services to related parties | Related parties only |
| Treasury and financing services to related parties or for its own account | Own-account treasury was added in 2025 |
| Financing and leasing of aircraft | Natural person customers allowed |
| Distribution of goods or materials in or from a designated zone | Designated zones only |
| Logistics services | None |
| Ancillary activities | Necessary for the main activity, or a minor contribution so closely tied to it that it isn't a separate activity |
Source: Ministerial Decision No. 229 of 2025, Article 2; Ministry of Finance announcement of 3 September 2025. Accurate as of 26 October 2026.
Which activities are excluded, even inside a free zone?
Excluded activities are the ones Ministerial Decision No. 229 of 2025 removes from qualifying income whatever the licence says, and they push a free zone company towards the 9% rate or the de minimis limit. There are five, plus anything ancillary to them.
- Transactions with natural persons, except those tied to ships, fund management, wealth and investment management, and aircraft financing and leasing.
- Banking activities.
- Insurance activities, apart from the reinsurance and headquarter services preserved in the qualifying list.
- Finance and leasing activities, apart from the ones the decision preserves for ships, commodities, treasury and aircraft.
- Ownership or exploitation of immovable property, except commercial property in a free zone transacted with another free zone person.
A free zone company that sells qualifying commodities to a private individual has made an excluded transaction, even though the commodity qualifies.
How much non-qualifying income can a free zone company have?
A free zone company can keep its Qualifying Free Zone Person status if its non-qualifying revenue in a tax period does not exceed the lower of 5% of total revenue or AED 5,000,000. Both limits apply together, and whichever is lower governs.
| Total revenue in the tax period | 5% of total revenue | Cap | Limit that applies to non-qualifying revenue |
|---|---|---|---|
| AED 10,000,000 | AED 500,000 | AED 5,000,000 | AED 500,000 |
| AED 50,000,000 | AED 2,500,000 | AED 5,000,000 | AED 2,500,000 |
| AED 100,000,000 | AED 5,000,000 | AED 5,000,000 | AED 5,000,000 |
| AED 150,000,000 | AED 7,500,000 | AED 5,000,000 | AED 5,000,000 |
Source: Ministerial Decision No. 229 of 2025, Article 3 (arithmetic by Qawi). Accurate as of 26 October 2026.
Say a free zone company bills AED 20,000,000 in a year and AED 1,200,000 of that comes from services that aren't qualifying activities. The 5% limit is AED 1,000,000, so the company is AED 200,000 over and fails the test; a bill of AED 900,000 would have passed. That example is hypothetical, but the arithmetic follows the decision.
The test counts revenue, not profit, so a low-margin non-qualifying stream can still sink the status.
Cabinet Decision No. 100 of 2023, Article 4 leaves permanent establishment revenue and certain property revenue out of both sides of the calculation.
What happens to income that isn't qualifying income?
Income that isn't qualifying income is taxable at 9% where the company remains a Qualifying Free Zone Person; if the company fails a condition, it loses the 0% rate on all of its income. These are two different outcomes, and the dividing line is the de minimis limit.
- A company inside the limit keeps its status. Its qualifying income is taxed at 0% and its non-qualifying income at 9% (Federal Decree-Law No. 47 of 2022, Article 3(2)).
- A company outside the limit ceases to be a Qualifying Free Zone Person from the beginning of that tax period (Article 18(2) and Ministerial Decision No. 229 of 2025, Article 5). Ministerial Decision No. 229 of 2025 adds that the status is lost for the four tax periods that follow.
- A company that has lost status is taxed under the general rates in Article 3 of the Decree-Law, with no 0% rate.
Under Ministerial Decision No. 84 of 2025, a Qualifying Free Zone Person must also prepare audited financial statements whatever its revenue, for tax periods starting on or after 1 January 2025.
How do you check your own income streams?
You check your income streams by sorting every revenue line by customer type and activity, then testing the totals against the de minimis limit.
- List each revenue stream for the tax period with the customer on each invoice, marked as a free zone person, a non-free zone person or a natural person.
- Match each activity to Article 2(1) (qualifying) and Article 2(2) (excluded) of Ministerial Decision No. 229 of 2025.
- Total the non-qualifying revenue and compare it with the lower of 5% of total revenue or AED 5,000,000.
- Keep the working papers for your auditor.
If you'd rather not track these dates by hand, the UAE compliance calendar is a free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions, as a PDF and calendar file.
AED 5,000,000: the fixed cap on non-qualifying revenue for a Qualifying Free Zone Person, applied alongside a 5% of total revenue limit; the lower figure governs. Source: Ministerial Decision No. 229 of 2025, Article 3, checked 26 October 2026.
What most guides don't tell you
A free zone licence doesn't make an activity qualifying. The test runs on what the company does and who it does it for, so a company licensed for general trading can have most of its revenue land in the non-qualifying bucket even though its licence sits in a free zone.
Sales to individuals are easy to miss. Transactions with natural persons are excluded for most activities, so retail-style sales move revenue into the non-qualifying column; only a clean invoice record shows how much.
The decision's own date text looks odd. Ministerial Decision No. 229 of 2025 was issued on 28 August 2025 but its text states an effective date of 1 June 2023. The Ministry of Finance announcement doesn't spell out how that interacts with earlier tax periods, so check the current wording with a tax adviser before relying on the 2025 changes for a prior period.
Audited accounts are a condition, not a choice. The cost of an audit belongs in the decision to stay inside the regime.
Which deadlines apply to your company?
Free zone status, filing dates and audit deadlines all depend on your licence date and tax period. Qawi's free UAE compliance calendar lists them for your company, personalised from a few questions.
Frequently asked questions
Do free zone companies pay corporate tax in the UAE?
Yes, free zone companies are taxable persons under the Corporate Tax Law. A Qualifying Free Zone Person pays 0% on qualifying income and 9% on other taxable income.
What is a Qualifying Free Zone Person?
A Qualifying Free Zone Person is a free zone company that meets the conditions in Article 18 of Federal Decree-Law No. 47 of 2022: adequate substance in the UAE, qualifying income, no election for the standard regime, transfer pricing compliance, and any conditions the Minister sets. Ministerial Decision No. 229 of 2025 adds the de minimis limit and the audited accounts condition.
What is de minimis for free zone corporate tax?
De minimis is the amount of non-qualifying revenue a Qualifying Free Zone Person can earn without losing its status. For a tax period it is the lower of 5% of total revenue or AED 5,000,000 (Ministerial Decision No. 229 of 2025, Article 3, as of October 2026).
About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn
Sources
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, consolidated with amendments (Ministry of Finance)
- Cabinet Decision No. 100 of 2023 on Determining Qualifying Income for the Qualifying Free Zone Person (Ministry of Finance)
- Ministerial Decision No. 229 of 2025 Regarding Qualifying Activities and Excluded Activities (Ministry of Finance)
- Ministry of Finance announcement of Ministerial Decisions on Qualifying Activities and Recognised Price Reporting Agencies, 3 September 2025
- Ministerial Decision No. 84 of 2025 on Audited Financial Statements (Ministry of Finance)
- Ministerial Decision No. 265 of 2023 (repealed by Ministerial Decision No. 229 of 2025)
Last checked: 26 October 2026
General information, not tax or legal advice for your specific situation.