Free zone companies can access a 0% Corporate Tax rate on qualifying income — but only if they pass the Qualifying Free Zone Person (QFZP) tests. Get one condition wrong and you drop to the standard 9% rate for five years. Here's what qualifies and how to protect the status.
Core QFZP conditions
- Maintain adequate substance in the free zone (people, premises, assets)
- Derive qualifying income (see below)
- Not elect to be subject to the standard 9% rate
- Comply with transfer pricing documentation
- Prepare audited financial statements
Qualifying activities
- Manufacturing and processing of goods
- Holding of shares and other securities (for investment purposes)
- Ownership, management and operation of ships
- Reinsurance, fund management and wealth management (regulated)
- Headquarter services, treasury and financing to related parties
- Distribution of goods from a Designated Zone
The de minimis rule
Non-qualifying revenue must stay below the lower of 5% of total revenue or AED 5 million. Breach the threshold and you lose QFZP status for that tax period plus the next 4 — a five-year 9% penalty in practice.
Track qualifying vs non-qualifying revenue monthly, not annually. By the time year-end audit finds a breach, it is too late.
What loses you QFZP status
- Failing the substance test in the free zone
- Exceeding the de minimis threshold
- Missing the audited financial statements requirement
- Not maintaining transfer pricing documentation for related-party transactions
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Frequently asked questions
Quick answers to common UAE corporate tax questions.
This article is for general guidance only and reflects FTA rules as of June 2026. Always confirm your specific position with a qualified UAE tax advisor.