A Qualifying Free Zone Person (QFZP) pays 0% corporate tax on qualifying income and 9% on taxable income that is not qualifying. The status is tested every tax period. Failing a condition ends it from the start of that period and for the next four tax periods (Ministerial Decision No. 229 of 2025, Article 5(2)).
What are the conditions?
- Adequate substance in the free zone: the core income-generating activities are carried out there, with enough staff, assets and spending.
- Qualifying income, earned from qualifying activities or from transactions with other free zone persons.
- Non-qualifying revenue within the de minimis limit.
- Audited financial statements.
- Related-party transactions priced at arm's length, with transfer pricing documentation.
- No election to be taxed at the standard rates.
Source: Federal Decree-Law No. 47 of 2022, Article 18, and the decisions issued under it.
Which activities qualify?
Ministerial Decision No. 229 of 2025 lists the qualifying activities. They include:
- Manufacturing and processing of goods or materials.
- Trading of qualifying commodities.
- Holding shares and other securities for investment.
- Ownership, management and operation of ships.
- Reinsurance, fund management, and wealth and investment management.
- Headquarter services, and treasury and financing services, to related parties.
- Financing and leasing of aircraft.
- Distribution of goods in or from a designated zone.
- Logistics services.
- Activities ancillary to the above.
General trading is not on the list. A free zone trader that sells to mainland customers needs to check whether its activity fits distribution in or from a designated zone, or another qualifying activity.
Which activities are excluded?
- Transactions with natural persons, except for a few qualifying activities such as fund management, wealth and investment management, ship operation and aircraft financing.
- Banking.
- Insurance, other than reinsurance and some headquarter services.
- Finance and leasing, with some exceptions.
- Ownership or exploitation of immovable property, except commercial property in a free zone transacted with other free zone persons.
- Activities ancillary to excluded activities.
How does the de minimis limit work?
Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower (Ministerial Decision No. 229 of 2025, Article 3).
Hypothetical example: a free zone manufacturer has total revenue of AED 40 million. Its limit is AED 2 million, because 5% of AED 40 million is lower than AED 5 million. If it sells AED 2.5 million of goods directly to individuals, it exceeds the limit and loses QFZP status from the start of that tax period and for the next four.
How do companies lose the status in practice?
- Sales to individuals, through a showroom or online, inside the QFZP entity.
- Weak substance, for example running the core activity from outside the free zone.
- A trading activity that does not fit any qualifying activity.
- Related-party pricing without documentation.
- Non-qualifying revenue that is not tracked during the year and is found only at year end.
What should finance put in place?
- A revenue map that tags every income stream as qualifying, excluded or other non-qualifying.
- A monthly calculation of non-qualifying revenue against the limit, reported to management.
- A separate entity for sales to individuals where the volume could breach the limit.
- A substance file: people, premises, assets and decision-making in the free zone.
- Transfer pricing documentation for every related-party transaction.