Skip to content
Sign inCreate a company

Resources

Qualifying Free Zone Person (QFZP): conditions and the 0% rate

When a free zone company can pay 0% corporate tax on qualifying income, the conditions it must meet every period, the de minimis test, and what happens if a condition is missed.

· 7 min read · Written against the official sources listed below.

Key facts

Qualifying income
0% corporate tax
Other taxable income
9%
De minimis
non-qualifying revenue up to 5% of total revenue or AED 5 million, whichever is lower
Missing a condition
status lost for that period and the next 4

Overview

General information, not tax advice. The QFZP rules are detailed and have been amended — check the current law and guidance on tax.gov.ae (FTA) and mof.gov.ae before you act.

A free zone company is subject to UAE corporate tax like any other company, but if it meets the conditions of a Qualifying Free Zone Person (QFZP) it pays 0% on its qualifying income. The rules are set by Article 18 of Federal Decree-Law No. 47 of 2022, Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025 on qualifying and excluded activities (which replaced Ministerial Decision No. 265 of 2023). The FTA explains them in its Free Zone Persons guide (CTGQFZ1).

How QFZP income is taxed

Corporate tax rates for a QFZP
IncomeRate
Qualifying income0%
Taxable income that is not qualifying income9%

The AED 375,000 zero band for ordinary taxpayers does not apply to a QFZP's non-qualifying income. A QFZP also cannot use Small Business Relief.

The conditions

To be a QFZP for a tax period, a free zone person must meet all of these conditions throughout the period:

  1. Maintain adequate substance in the free zone: core income-generating activities carried out there, with adequate assets, qualified full-time employees and operating expenditure.
  2. Derive qualifying income.
  3. Not have elected to be subject to corporate tax at the standard rates.
  4. Comply with the arm's length principle and transfer pricing documentation requirements.
  5. Meet the de minimis requirement for non-qualifying revenue.
  6. Prepare audited financial statements.

Qualifying income and activities

In general terms, qualifying income includes income from transactions with other free zone persons (except from excluded activities), income from qualifying activities carried out with non-free zone persons, and certain income from qualifying intellectual property. Income attributable to a domestic or foreign permanent establishment, and most income from UAE immovable property, are treated differently.

Ministerial Decision No. 229 of 2025 lists qualifying activities. Among them are manufacturing and processing of goods, trading of qualifying commodities, holding of shares and other securities, ship management and operation, reinsurance, fund management, wealth and investment management, headquarter services, treasury and financing services to related parties, aircraft financing and leasing, distribution in or from a designated zone, and logistics services.

Excluded activities include, broadly, most transactions with natural persons, banking, insurance (other than qualifying activities), finance and leasing (other than qualifying activities), ownership or exploitation of UAE immovable property (other than certain commercial property in a free zone), and ownership or exploitation of intellectual property assets other than qualifying ones. The lists contain conditions and have been updated since 2023 — check the current version.

The de minimis test

Revenue from excluded activities and other non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5,000,000 in the tax period. Some revenue is disregarded for this test, for example certain income from immovable property in a free zone; the details are in Cabinet Decision No. 100 of 2023.

Example: a QFZP with total revenue of AED 40 million may earn up to AED 2 million (5%) of non-qualifying revenue. With total revenue of AED 150 million, the limit is AED 5 million, because 5% (AED 7.5 million) is higher.

If a condition is not met

A person that fails to meet any condition ceases to be a QFZP from the beginning of the tax period in which the failure happens, and is taxed at the standard rates for that period and the following four tax periods. Monitoring the de minimis ratio and substance during the year — not only at year end — is therefore essential.

How Ledgr helps

  • The corporate tax module lets you claim QFZP status in the computation and split income into qualifying and non-qualifying.
  • The computation shows the de minimis test for the period, taxes non-qualifying income at 9% and excludes Small Business Relief for a QFZP.
  • Income can be tagged by account, so the split follows your books, not a spreadsheet.
  • Coming soon: a QFZP monitor that tracks the de minimis ratio during the year and warns before the limit.
Create a companyTalk to us

Official sources

General information, not tax advice. Rules change — check the current FTA and Ministry of Finance guidance before you act.

More guides