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A juridical person incorporated or registered in a UAE free zone.
Corporate Tax · Free zones
UAE free zone Corporate Tax & the QFZP 0% regime
A Qualifying Free Zone Person (QFZP) can pay 0% Corporate Tax on its qualifying income — with 9% applying to income that does not qualify. But the 0% benefit only holds if the business meets every condition, every tax period.
This guide explains what a QFZP is, the conditions, qualifying income, the de-minimis rule, and what happens if the status is lost.
What is a Qualifying Free Zone Person?
UAE Corporate Tax applies to businesses across the country: 0% on taxable income up to AED 375,000 and 9% above, for financial years beginning on or after 1 June 2023. Free-zone businesses sit within this regime — but a qualifying one can access a preferential rate.
A Qualifying Free Zone Person (QFZP) is a free-zone business that meets all the required conditions to benefit from a 0% rate on its qualifying income. Income that is not qualifying is taxed at the standard 9% rate. The status is not automatic — it must be earned and maintained by satisfying every condition below in each tax period.
The QFZP conditions
All of these must be met for the 0% rate on qualifying income to apply.
Adequate substance
Carry out core income-generating activities in the free zone, with adequate assets, qualified employees, and operating expenditure.
Derive qualifying income
Earn income that meets the definition of qualifying income under the Corporate Tax rules.
No election out
Not have elected to be subject to the standard Corporate Tax regime.
Audited financial statements
Prepare and maintain audited financial statements for the tax period.
Stay within de-minimis
Keep non-qualifying revenue within the de-minimis limit (see below).
Qualifying income
The 0% rate only applies to a QFZP’s qualifying income. Broadly, this is income that the Corporate Tax rules recognise as eligible for the free-zone benefit — for example, income from transactions with other free-zone persons and certain qualifying activities. Income that falls outside these categories is non-qualifying and is taxed at 9%.
Because the definition of qualifying income is technical and central to the benefit, free-zone businesses should map each income stream carefully and take professional advice where a stream is uncertain.
The de-minimis rule
A QFZP is allowed a small amount of non-qualifying revenue without losing its status. Non-qualifying revenue must not exceed:
the lower of 5% of total revenue or AED 5,000,000
Whichever figure is smaller sets the ceiling. Exceeding the de-minimis limit in a tax period causes the business to fail the QFZP test for that period. Monitoring the split between qualifying and non-qualifying revenue throughout the year is therefore essential — not just at year-end.
Consequences of losing QFZP status
If a free-zone person fails any of the conditions in a tax period, the consequences are significant:
- !It loses the 0% rate for that period — its income is subject to Corporate Tax at the standard 9% rate.
- !It is disqualified from QFZP status for the following four tax periods, so the effect is felt for several years, not just one.
How AIMuhaseb helps
Keep the records QFZP status depends on
Holding QFZP status rests on clean books, audited financial statements, and a clear view of qualifying versus non-qualifying revenue. AIMuhaseb keeps a proper IFRS double-entry ledger with a UAE chart of accounts, real-time financial statements, and Corporate Tax support built around the AED 375,000 band and 9% rate — the foundation you need for a smooth audit and confident free-zone filing. Our UAE team can handle your Corporate Tax registration and computation.
FAQ
Free zone Corporate Tax questions
What is a Qualifying Free Zone Person (QFZP)?
A Qualifying Free Zone Person is a free-zone business that meets all the UAE Corporate Tax conditions to benefit from a 0% rate on its qualifying income. Income that does not qualify is taxed at the standard 9% rate. Meeting every condition is essential — failing any one of them means the 0% benefit is lost.
What are the conditions to be a QFZP?
To be a Qualifying Free Zone Person, a business must: be a free-zone person; maintain adequate substance in the free zone (core activities, and adequate assets, employees, and operating expenditure); derive qualifying income; not have elected to be taxed under the standard Corporate Tax regime; and maintain audited financial statements. It must also stay within the de-minimis limit for non-qualifying revenue.
What is the de-minimis requirement?
The de-minimis rule limits how much non-qualifying revenue a QFZP can earn while keeping its status. Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5,000,000. Exceeding this limit causes the business to fail the QFZP test for that period.
What happens if a business loses its QFZP status?
If a free-zone person fails the conditions in a tax period, it does not get the 0% rate for that period — its income is subject to Corporate Tax at the standard rate. It is also disqualified from being a QFZP for the following four tax periods, so the loss of status has a multi-year effect.
Does a free-zone company still need to register for Corporate Tax?
Yes. All taxable persons, including free-zone businesses, must register for UAE Corporate Tax with the Federal Tax Authority — even a Qualifying Free Zone Person that expects to pay 0% on its qualifying income. Registration is separate from the rate that ultimately applies.
Do free-zone businesses need audited financial statements?
Yes. Maintaining audited financial statements is one of the conditions for Qualifying Free Zone Person status. Keeping proper IFRS-based books throughout the year is what makes a clean audit — and therefore the 0% benefit — achievable.
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