Key takeaways
- A Qualifying Free Zone Person (QFZP) pays 0% UAE corporate tax on its qualifying income and 9% on its other taxable income (Federal Decree-Law No. 47 of 2022, Article 3, as of October 2026).
- A free zone company is a QFZP only while it meets every condition together: adequate substance, qualifying income, no election to pay the standard rate, compliance with the arm's length and transfer pricing rules, audited financial statements, and the de minimis limit.
- The de minimis limit caps a QFZP's non-qualifying revenue at the lower of 5% of total revenue or AED 5,000,000 (Ministerial Decision No. 229 of 2025, Article 3).
- A QFZP that fails a condition loses 0% treatment from the start of that tax period and for the four tax periods after it, five periods in total.
- Holding a free zone licence doesn't make a company a QFZP: income from individuals is an Excluded Activity in most cases, and mainland customers only count for listed Qualifying Activities.
What is a Qualifying Free Zone Person?
A QFZP is a free zone company that has earned the right to a 0% corporate tax rate on its qualifying income, with 9% applying to everything else it earns. The rate comes from Article 3(2) of Federal Decree-Law No. 47 of 2022, and the conditions come from Article 18.
Only a juridical person incorporated, established or registered in a free zone can be a Free Zone Person, including a registered branch of a non-resident company. Natural persons and unincorporated partnerships can't be, and a company formed outside a free zone doesn't become one because its management sits in a free zone (FTA Corporate Tax Guide CTGFZP1, May 2024). The FTA guide treats a Free Zone Person as a QFZP by default unless it fails a condition or elects out; the guide extract we reviewed describes no separate approval step.
Which conditions must a Qualifying Free Zone Person meet?
A Free Zone Person must meet all the conditions in the table below at once, in every tax period. Failing any one of them removes QFZP status for that period.
| Condition | What it requires | Source |
|---|---|---|
| Adequate substance | Core income-generating activities carried out in a free zone (or Designated Zone for distribution), with supervision of anything outsourced | Federal Decree-Law No. 47 of 2022, Art. 18; Cabinet Decision No. 100 of 2023, Art. 8 |
| Qualifying Income | Income from Free Zone Persons and from Qualifying Activities with other persons | Cabinet Decision No. 100 of 2023, Art. 3 |
| No election | The company hasn't elected to be taxed under the standard rules | Federal Decree-Law No. 47 of 2022, Art. 19 |
| Related-party rules | Arm's length pricing (Art. 34) and transfer pricing documentation (Art. 55) | Federal Decree-Law No. 47 of 2022, Art. 18 |
| Audited financial statements | Prepared and maintained regardless of revenue | FTA Corporate Tax Guide CTGFZP1; Ministerial Decision No. 229 of 2025, Art. 5 |
| De minimis | Non-qualifying revenue within the cap | Ministerial Decision No. 229 of 2025, Art. 3 |
Accurate as of 25 October 2026. The substance test has no fixed headcount or spend figure in the sources reviewed, so confirm your own position with an adviser.
What counts as qualifying income and qualifying activities?
Qualifying income is income from transactions with other Free Zone Persons (except Excluded Activities), income from Qualifying Activities with non-free-zone persons, income from owning or exploiting qualifying intellectual property, and other income within the de minimis limit (Cabinet Decision No. 100 of 2023, Article 3). Ministerial Decision No. 229 of 2025 sets the activity lists and replaced Ministerial Decision No. 265 of 2023.
| Qualifying Activities (Art. 2(1)) | Excluded Activities (Art. 2(2)) |
|---|---|
| Making, assembling, processing or converting goods | Transactions with natural persons, except ship ownership, fund management, wealth and investment management, and aircraft financing or leasing |
| Trading Qualifying Commodities | Banking |
| Holding shares and securities for investment (held for at least 12 months without interruption) | Insurance, except reinsurance and headquarter services |
| Owning, managing and operating ships used internationally | Finance and leasing, except commodity trading, ships, treasury and aircraft |
| Reinsurance, fund management, wealth and investment management | Owning or exploiting immovable property, except certain commercial property in a free zone dealt with a Free Zone Person |
| Headquarter services and treasury and financing for Related Parties or own account | Activities ancillary to the excluded items |
| Financing and leasing of aircraft | |
| Distributing goods in or from a Designated Zone; logistics services |
Accurate as of 25 October 2026. Distribution only qualifies if goods enter the UAE through a Designated Zone and go to customers who resell, process or alter them, or to public benefit entities. Commodity trading doesn't qualify where distribution, warehousing, logistics or inventory revenue is 51% or more of total revenue.
How does the de minimis rule work?
A QFZP can earn some non-qualifying revenue and keep 0% status, provided that revenue stays at or below the lower of 5% of total revenue or AED 5,000,000 (Ministerial Decision No. 229 of 2025, Article 3). Both limits apply, and the smaller one governs.
Say a free zone trading company has total revenue of AED 8,000,000. Five per cent is AED 400,000, which is lower than AED 5,000,000, so AED 400,000 is the cap; AED 450,000 of non-qualifying revenue would fail it. At AED 200,000,000 of total revenue, 5% is AED 10,000,000, so the AED 5,000,000 cap applies instead. Revenue attributable to permanent establishments, certain free zone property transactions and non-qualifying intellectual property income is left out of the calculation (FTA Corporate Tax Guide CTGFZP1).
AED 5,000,000: the absolute cap on non-qualifying revenue for a Qualifying Free Zone Person, or 5% of total revenue if that is lower. Source: Ministerial Decision No. 229 of 2025, Article 3, checked 25 October 2026.
What happens if a company stops being a Qualifying Free Zone Person?
A company that fails a condition loses QFZP status from the start of that tax period and for the four tax periods that follow, so it pays the standard rules and rates for five periods before it can be tested again (Ministerial Decision No. 229 of 2025, Article 5(2); FTA Corporate Tax Guide CTGFZP1). Article 18 of the law itself says status ceases from the beginning of the tax period in which a condition is failed.
Because the test runs period by period, a single breach, such as audited statements not prepared or a one-off sale that blows the de minimis cap, reaches back to day one of that period. If you'd rather not track these dates by hand, the free UAE compliance calendar lists your company's deadlines, personalised from a few questions, as a PDF and calendar file.
Can a free zone company choose to pay the standard 9% rate?
Yes: a QFZP can elect under Article 19 of Federal Decree-Law No. 47 of 2022 to be taxed under the standard rules, and the election takes effect from the start of the tax period in which it is made or from the start of the next one. The FTA guide says the election can be made during the period or in the related tax return, but not after that return's due date has passed.
Electing out has the same five-period consequence as failing a condition, so treat it as a decision to weigh with an adviser. A company whose income will mostly be non-qualifying may find the election simpler than managing the de minimis cap.
What most guides don't tell you
- One breach costs five periods, not one. The loss of status starts at the beginning of the period in which the condition fails, so the whole year is taxed under the standard rules, then four more periods follow. A company near the de minimis line should watch the ratio during the year, not at year end.
- The audit is a QFZP condition, not just a licence-renewal task. The FTA guide requires audited financial statements for a Free Zone Person whatever its revenue, and Ministerial Decision No. 229 of 2025, Article 5, ties QFZP status to preparing them. So a free zone that doesn't itself demand an audit for licence renewal doesn't release you from preparing one.
- The 5% test runs on revenue, not profit. A low-margin trader with modest side income from individuals can breach it even when that income barely moves profit, because the test compares revenue to revenue.
- The activity rules were rewritten with retroactive effect. Ministerial Decision No. 229 of 2025 states it takes effect on 1 June 2023 and repeals Ministerial Decision No. 265 of 2023. Advisers such as PwC recommend revisiting positions taken earlier, and filed returns may need a voluntary disclosure; ask your adviser whether yours do.
Which deadlines apply to your company?
A QFZP's calendar covers corporate tax filing, audit timing and renewals, and a missed date can cost five tax periods of 0% treatment. The free UAE compliance calendar shows the dates that apply to your company, personalised from a few questions, as a PDF and calendar file.
Frequently asked questions
Do free zone companies pay corporate tax in the UAE?
Yes, free zone companies are within the corporate tax regime, but a Qualifying Free Zone Person pays 0% on qualifying income and 9% on its other taxable income. A free zone company that isn't a QFZP pays under the standard rules.
What counts as qualifying income for free zone companies?
Qualifying income covers transactions with other Free Zone Persons (except Excluded Activities), Qualifying Activities with non-free-zone persons, and income from qualifying intellectual property. Other income counts only while it stays within the de minimis limit.
What is de minimis for free zone corporate tax?
The de minimis rule lets a Qualifying Free Zone Person earn non-qualifying revenue up to the lower of 5% of total revenue or AED 5,000,000 without losing 0% treatment. Going over that limit breaks a QFZP condition for the whole tax period.
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, 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 on Qualifying Activities and Excluded Activities (Ministry of Finance)
- Ministry of Finance announcement on Ministerial Decisions 229 and 230 of 2025
- FTA Corporate Tax Guide: Free Zone Persons (CTGFZP1, May 2024)
- FTA announcement of the Free Zone Persons guide
- PwC Middle East alert on Ministerial Decisions 229 and 230 of 2025 (interpretation only)
Last checked: 25 October 2026
This is general information, not tax or legal advice for your specific situation.