A UAE free zone company pays 0% corporate tax only if it is a Qualifying Free Zone Person (QFZP) and only on its Qualifying Income. Income that is not qualifying is taxed at 9%. To be a QFZP a free zone company must meet every condition: adequate substance in the free zone, Qualifying Income, the de minimis limit, transfer pricing compliance, audited financial statements, and no election to be taxed under the standard rules.
What is a Qualifying Free Zone Person?
A Qualifying Free Zone Person is a Free Zone Person that meets the conditions in Article 18 of the Corporate Tax Law. The Ministry of Finance explains that such a company can benefit from a 0% corporate tax rate on its Qualifying Income. Free zone companies are not exempt from corporate tax by default, and being licensed in a free zone does not make a business a QFZP.
A Free Zone Person is treated as a QFZP unless it fails one of the conditions or chooses to be taxed under the standard rules.
What are the QFZP conditions?
According to the FTA's Free Zone Persons guide, a QFZP must:
| Condition | In plain terms |
|---|---|
| Adequate substance | Carry out its core income-generating activities in a free zone, with enough assets, qualified full-time employees and operating expenditure for the activities it performs |
| Qualifying Income | Earn income that counts as Qualifying Income |
| De minimis | Keep non-qualifying revenue within the limit set by the rules |
| Arm's length | Transact on arm's length terms and keep transfer pricing documentation |
| Audited accounts | Prepare audited financial statements |
| No election | Not have elected to be subject to the standard corporate tax rules and rates |
What is the de minimis rule?
The de minimis requirement is met if the company's non-qualifying revenue in a tax period does not exceed the lower of AED 5,000,000 or 5% of its total revenue. Some illustrations:
| Total revenue | 5% of revenue | Limit that applies |
|---|---|---|
| AED 10 million | AED 500,000 | AED 500,000 (the lower figure) |
| AED 80 million | AED 4 million | AED 4 million (the lower figure) |
| AED 200 million | AED 10 million | AED 5 million (the lower figure) |
These are illustrations of the rule. Your own calculation depends on how your revenue is classified.
What counts as Qualifying Income?
Cabinet Decision No. 100 of 2023 determines Qualifying Income for a QFZP. In broad terms it includes income from transactions with other Free Zone Persons, and income from certain activities carried out from within the prescribed zones. Ministerial Decision No. 229 of 2025 sets out the list of qualifying activities and excluded activities. A free zone licence that covers an excluded activity will not produce Qualifying Income, so read the lists against your actual business.
Do QFZPs still have to file?
Yes. QFZP status changes the rate, not your compliance duties. Taxable Persons must file a corporate tax return within nine months of the end of each tax period, and the FTA's guidance says a QFZP must keep audited financial statements prepared in line with Ministerial Decision No. 84 of 2025 (or any decision that amends or replaces it). Late filing carries penalties. Our late corporate tax filing guide covers them.
What should a free zone company do?
- Check your licensed activities against the qualifying and excluded activity lists.
- Review substance. Confirm where your core activities happen, who does them and what you spend there.
- Split your revenue into qualifying and non-qualifying, and test it against the de minimis limit.
- Keep transfer pricing documentation for related-party transactions.
- Arrange the audit of your financial statements.
- Register and file on time through EmaraTax. See how to register for corporate tax.
- Decide whether the 0% rate is worth it. A company may elect to be taxed under the standard rules, but take advice before electing.
How TaxBox can help
TaxBox helps free zone companies check their QFZP position, keep audit-ready books and file on time. Read our corporate tax registration service, or book a free consultation to talk through your licence and revenue.
Frequently asked questions
Are free zone companies exempt from corporate tax in the UAE? No. A free zone company pays 0% only if it is a Qualifying Free Zone Person and only on Qualifying Income. Other income is taxed at 9%.
What is the de minimis rule for free zone companies? A Qualifying Free Zone Person meets the de minimis requirement when its non-qualifying revenue in a tax period does not exceed the lower of AED 5,000,000 or 5% of its total revenue.
What is Qualifying Income for a free zone company? It is income determined under Cabinet Decision No. 100 of 2023, broadly including income from transactions with other Free Zone Persons and from certain qualifying activities. Ministerial Decision No. 229 of 2025 lists qualifying and excluded activities.
Does a Qualifying Free Zone Person need audited financial statements? Yes. The FTA's guidance lists audited financial statements among the conditions, prepared in accordance with Ministerial Decision No. 84 of 2025 and any decision that amends or replaces it.
Can a free zone company choose to pay the standard corporate tax rate? Yes. A Free Zone Person can elect to be subject to the standard corporate tax rules and rates instead of QFZP treatment. Take advice before electing.
Sources
- Federal Tax Authority: Corporate Tax Guide on Free Zone Persons
- Federal Tax Authority: Free Zone Persons Corporate Tax Guide (PDF)
- Ministry of Finance: Corporate Tax in the UAE
- Ministry of Finance: Cabinet Decision No. 100 of 2023 on Qualifying Income
- Ministry of Finance: Ministerial Decision No. 229 of 2025 on Qualifying and Excluded Activities
This article is general information, not tax advice. Rules, dates and penalty amounts change, so check the Ministry of Finance and Federal Tax Authority before you act.