How does a free zone company qualify for 0% corporate tax (QFZP) in the UAE?
A free zone company qualifies for 0% corporate tax by being a Qualifying Free Zone Person (QFZP). It must keep adequate substance, earn Qualifying Income, not elect standard tax, comply with Articles 34 and 55, prepare audited financial statements and keep non-qualifying revenue within the lower of 5% of total revenue or AED 5,000,000. [1][3][4]
Key takeaways
- The 0% rate applies only to a Qualifying Free Zone Person, and only on its Qualifying Income. Other taxable income is taxed at 9%. [1][6]
- The de minimis test is met when non-qualifying revenue does not exceed 5% of total revenue or AED 5,000,000, whichever is lower. [3]
- If a condition fails at any time in a Tax Period, QFZP status is lost from the start of that period and for the four subsequent Tax Periods. [3][5]
- A QFZP should still register for Corporate Tax and must file a return within 9 months of the end of the Tax Period. [6]
What is a Qualifying Free Zone Person and what tax rate applies?
A Qualifying Free Zone Person is a Free Zone Person that meets all the conditions in Article 18 of the Corporate Tax Law. It pays 0% on Qualifying Income and 9% on taxable income that is not Qualifying Income. [1][5] This is the corporate tax free zone regime in short.
A Free Zone Person is a juridical person incorporated, established or otherwise registered in a Free Zone. [5] A QFZP is not eligible for the 0% rate on the first AED 375,000 of Taxable Income, so its entire non-qualifying Taxable Income is taxed at 9%. [6] It also cannot use reliefs such as Small Business Relief, covered in our Small Business Relief guide. [5]
The 0% treatment lasts for the remainder of the tax incentive period in the relevant free zone legislation, and any one period cannot exceed 50 years. [1] A Free Zone Person, including a QFZP, should still register for Corporate Tax with the FTA, as covered in our guide to corporate tax registration in the UAE. [6]
Which conditions must a free zone company meet?
Article 18 of the Corporate Tax Law lists five conditions, and Ministerial Decision No. 229 of 2025 adds two more: the de minimis requirement and audited financial statements. All must be met, and the table below shows where each comes from. [1][3]
| Condition | What the text says | Source |
|---|---|---|
| Adequate substance | Maintains adequate substance in the State (Article 18(1)(a)) | [1] |
| Qualifying Income | Derives Qualifying Income as specified in a Cabinet decision (Article 18(1)(b)) | [1] |
| No election | Has not elected to be subject to Corporate Tax under Article 19 (Article 18(1)(c)) | [1] |
| Arm's length and transfer pricing | Complies with Articles 34 and 55 (Article 18(1)(d)) | [1] |
| Other conditions | Any other conditions prescribed by the Minister (Article 18(1)(e)) | [1] |
| De minimis | Non-qualifying revenue within the limit in Article 3 of the decision | [3] |
| Audited financial statements | Prepared in accordance with Ministerial Decision No. 84 of 2025 | [3] |
Ministerial Decision No. 229 of 2025 repeals Ministerial Decision No. 265 of 2023, which the May 2024 FTA guide still cites. [3][5] Rely on the later decision.
What counts as Qualifying Income?
Qualifying Income falls into four categories: income from transactions with a Free Zone Person that is the Beneficial Recipient, income from Qualifying Activities with a Non-Free Zone Person, income from Qualifying Intellectual Property, and other income if the de minimis requirements are satisfied. [2]
A Beneficial Recipient is a person who has the right to use and enjoy the service or good and has no contractual or legal obligation to supply it to another person. [2]
Ministerial Decision No. 229 of 2025 lists these Qualifying Activities: [3]
- Manufacturing and processing of goods or materials, and trading of Qualifying Commodities.
- Holding of shares and other securities for investment purposes.
- Ships (ownership, management, operation) and financing and leasing of Aircraft.
- Reinsurance, fund management, and wealth and investment management.
- Headquarter, treasury and financing services to Related Parties.
- Distribution in or from a Designated Zone, logistics, and ancillary activities.
Excluded Activities include transactions with natural persons (with limited exceptions), banking, insurance, finance and leasing (each with carve-outs), and ownership or exploitation of immovable property other than certain Commercial Property in a Free Zone. [3]
Some income is taxed at 9% even if it looks qualifying. Income attributable to a Domestic or Foreign Permanent Establishment, income from immovable property (other than the Commercial Property exception) and intellectual property income that is not Qualifying Income all fall outside. [2][5] Qualifying Intellectual Property means Patents, Copyrighted Software and functionally equivalent rights, not marketing-related assets such as trademarks. [2]
How does the de minimis rule work?
The de minimis requirement is met when non-qualifying revenue in a Tax Period does not exceed 5% of the QFZP's total revenue or AED 5,000,000, whichever is lower. [3] Non-qualifying revenue is revenue that does not arise from Qualifying Activities or from eligible Free Zone Person transactions. [2]
Non-qualifying revenue is revenue from Excluded Activities, from activities that are not Qualifying Activities where the other party is a Non-Free Zone Person, and from transactions with a Free Zone Person that is not the Beneficial Recipient. [2] Permanent Establishment revenue, certain immovable property revenue and non-qualifying intellectual property revenue are left out of both figures. [2]
In the FTA guide's example, revenue of AED 10,000,000 with AED 2,000,000 attributable to a Domestic Permanent Establishment gives total revenue of AED 8,000,000 for the test. [5] If the test is failed, the Free Zone Person is not a QFZP from the start of the Tax Period and for the four subsequent Tax Periods. [5]
What do substance, audited accounts and transfer pricing require?
Three conditions depend on evidence rather than a licence. A QFZP needs adequate substance in a Free Zone, audited financial statements regardless of revenue, and compliance with the arm's length and transfer pricing documentation rules. [1][2][4][5]
Substance. A QFZP must carry out its core income-generating activities in a Free Zone or Designated Zone, with adequate assets, an adequate number of qualified full-time employees and adequate operating expenditure for each activity. [2] These activities may be outsourced to another person in a Free Zone or Designated Zone if the QFZP adequately supervises them. [2] The FTA guide says adequacy is judged case by case. [5]
Audited financial statements. Ministerial Decision No. 84 of 2025 names a Qualifying Free Zone Person as one that must prepare and maintain audited financial statements, for Tax Periods commencing on or after 1 January 2025. [4] The FTA bulletin says this applies even if revenue is below AED 50 million, and documentation must show how Qualifying Income was calculated. [6]
Transfer pricing. Article 34 requires transactions between Related Parties to meet the arm's length standard. [1] Under Article 55 the FTA may require a disclosure with the Tax Return, and where Minister-prescribed conditions are met a master file and local file must be kept and submitted within 30 days of a request. [1]
What happens if the conditions are not met?
A QFZP that fails any condition at any time during a Tax Period ceases to be a QFZP from the beginning of that Tax Period and for the four subsequent Tax Periods. [1][3] It is then subject to the standard Corporate Tax rules and rates. [5]
The guide notes that status is not regained in those four periods even if the conditions are met during them. [5] Separately, Article 18(3) lets the Minister prescribe conditions under which a person may continue to be a QFZP or cease from a different date. [1] A person that is not a QFZP can use the 0% rate on Taxable Income up to AED 375,000. [5] The same four-period rule applies if the company elects out of QFZP status. [5]
A practical checklist for each Tax Period:
- Map every revenue stream to Qualifying Income or non-qualifying revenue. [2][3]
- Keep evidence of core income-generating activities, staff, assets and expenditure in the Free Zone. [2][5]
- Have the financial statements audited and keep transfer pricing documentation. [1][4]
- File the Tax Return and pay any tax within 9 months of the end of the Tax Period. [6]
- Keep records for 7 years after the end of the Tax Period. [6]
How GCC Filings can help
GCC Filings Bookkeeping LLC is a Dubai firm. Its Corporate Tax Services include evaluating Qualifying Free Zone Person (QFZP) 0% tax eligibility criteria, as well as annual Corporate Tax computation, return compilation and submission to the FTA.
Related reading: mainland vs free zone vs offshore and record keeping requirements. Browse all services or the blog. To get in touch, call +971 4 557 4802, email [email protected], or visit Office 2403, East Wing, Latifa Towers, Sheikh Zayed Road, Dubai.
Limits of this guide
Tax rules, thresholds and deadlines change, and your facts may differ. Confirm the current position at tax.gov.ae and mof.gov.ae. This article is general information and not tax or legal advice.
Frequently asked questions
Do all free zone companies pay 0% corporate tax?
No. Only a Qualifying Free Zone Person pays 0%, and only on Qualifying Income. A free zone company that fails a condition is taxed under the standard rules, and even a QFZP pays 9% on taxable income that is not Qualifying Income. [1][5]
Can a free zone company with some mainland income still be a QFZP?
Possibly. Income from Non-Free Zone Persons qualifies only for Qualifying Activities that are not Excluded Activities. Other revenue counts as non-qualifying, and it must stay within the de minimis limit of the lower of 5% of total revenue or AED 5,000,000 in the Tax Period. [2][3]
Does a QFZP need audited financial statements if revenue is small?
Yes. Ministerial Decision No. 84 of 2025 requires a Qualifying Free Zone Person to prepare and maintain audited financial statements, and the FTA guide says this applies regardless of the amount of Revenue earned, so even small free zone companies need an audit. [4][5]
Can a QFZP use Small Business Relief?
No. The FTA Free Zone Persons guide says a QFZP does not qualify for Tax Grouping or for reliefs such as Small Business Relief, Qualifying Group Relief, Business Restructuring Relief and the transfer of Tax Losses, unlike other taxable persons. [5]
Can a free zone company choose to pay standard corporate tax?
Yes. Article 19 lets a QFZP elect to be subject to standard rates. The election applies from the start of the Tax Period in which it is made or the next one, cannot be made after the Tax Return due date, and the FTA guide says it lasts for that period and the four following. [1][5]
Sources
- Ministry of Finance (UAE). Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and its amendments (not an official translation), 2026. https://mof.gov.ae/wp-content/uploads/2026/01/Federal-Decree-Law-No.-47-of-2022-and-its-amendments-en-v13.1.26.pdf
- Ministry of Finance (UAE). Cabinet Decision No. 100 of 2023 on Determining Qualifying Income for the Qualifying Free Zone Person, 2023. https://mof.gov.ae/wp-content/uploads/2023/11/Cabinet-Decision-No.-100-of-2023-on-Determining-Qualifying-Income-for-the-Qualifying-Free-Zone-Person.pdf
- Ministry of Finance (UAE). Ministerial Decision No. 229 of 2025 Regarding Qualifying Activities and Excluded Activities, 2025. https://mof.gov.ae/wp-content/uploads/2025/09/EN-Ministerial-Decision-No.-229-of-2025-Regarding-Qualifying-Activities-and-Excluded-Activities.pdf
- Ministry of Finance (UAE). Ministerial Decision No. 84 of 2025 on Audited Financial Statements, 2025. https://mof.gov.ae/wp-content/uploads/2025/04/Ministerial-Decision-No.-84-of-2025-on-Audited-Financial-Statements.pdf
- Federal Tax Authority (UAE). Corporate Tax Guide: Free Zone Persons (CTGFZP1), 2024. https://tax.gov.ae/Datafolder/Files/Guides/CT/Free%20Zone%20Persons%20-%2020%2005%202024%20final%20for%20GCD.pdf
- Federal Tax Authority (UAE). Basic Tax Information Bulletin: Free Zone Persons. https://tax.gov.ae/Datafolder/Files/Pdf/2024/CT%20Bulletin/Basic%20Tax%20Information%20bulletin-%20Free%20Zone%20Person-English.pdf
Accessed 20 October 2026. General information only; confirm current rules with the FTA.