Adequate substance
Maintain adequate substance in the free zone — core income-generating activities, assets, qualified employees, and operating expenditure that match the income earned.
Free zone Corporate Tax · UAE
Qualifying Free Zone Person: the 0% deep dive
The 0% free-zone benefit is real, but conditional. This guide takes you deep into the Qualifying Free Zone Person regime — the exact conditions, what qualifying income means, and how the de-minimis rule decides whether you keep your 0% status.
What a QFZP actually is
A Qualifying Free Zone Person (QFZP) is a free-zone business that meets every one of the Corporate Tax conditions and, as a result, is taxed at 0% on its qualifying income and 9% on its non-qualifying income. Unlike mainland businesses, the AED 375,000 threshold does not apply — the 0% benefit is attached to the nature of the income, not to a fixed band.
The key point is that QFZP status is not automatic and not permanent. It has to be earned each period by satisfying all of the conditions, and it can be lost by failing any one of them.
Looking for the broader picture of how Corporate Tax applies across free zones? Start with our free zone Corporate Tax overview. This page assumes that context and drills into QFZP status, qualifying income, and the de-minimis rule.
0% on qualifying, 9% on the rest
A QFZP splits its income into qualifying and non-qualifying, and each is taxed differently.
0%
Qualifying income
Income that meets the definition of qualifying income under the Corporate Tax rules and the current qualifying-activities list is taxed at 0%. The AED 375,000 threshold does not apply to a QFZP.
9%
Non-qualifying income
Income that does not qualify is taxed at the standard 9% rate. Keeping non-qualifying revenue within the de-minimis limit is essential to holding QFZP status.
The QFZP conditions
Every condition must be met — and kept — for the 0% treatment to apply.
Qualifying income
Derive income that meets the definition of qualifying income under the Corporate Tax rules and the current qualifying-activities list.
Audited financial statements
Prepare and maintain audited financial statements for the tax period, in line with FTA requirements.
Arm's-length / TP compliance
Comply with the arm's-length principle and transfer pricing documentation rules on related-party and connected-person transactions.
No election for standard CT
Not elect to be taxed under the standard Corporate Tax regime — electing out gives up QFZP treatment.
Meet the de-minimis rule
Keep non-qualifying revenue within the de-minimis limit — the lower of 5% of total revenue or AED 5,000,000.
The de-minimis rule in detail
The de-minimis rule sets a ceiling on 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.
Because it is the lower of the two, the AED 5,000,000 figure effectively becomes a hard cap once total revenue is large enough that 5% would exceed it. For a business with AED 60 million of total revenue, for instance, 5% is AED 3 million, so the AED 3 million figure applies; for a business with AED 200 million of total revenue, 5% would be AED 10 million, so the AED 5,000,000 cap applies instead.
Breaching the de-minimis limit causes the business to fail the QFZP conditions for that period — which is why non-qualifying revenue needs to be tracked continuously, not just checked at year end.
Losing — and keeping — QFZP status
Failing any single condition means the business is not a QFZP for that period, and standard Corporate Tax applies. A failure generally also disqualifies the business from the regime for a number of following tax periods, so the cost of a lapse extends beyond the year in which it happens.
Two conditions interlock with other parts of the Corporate Tax rules: audited financial statements, and full transfer pricing compliance. If your business transacts with related parties or connected persons, read our transfer pricing guide alongside this one, and keep the UAE Corporate Tax guide to hand for the wider framework.
How AIMuhaseb helps
Track qualifying income, protect your 0%
AIMuhaseb keeps IFRS-based double-entry accounts that separate qualifying from non-qualifying revenue, so you can see where you stand against the de-minimis limit throughout the year — not just at filing. With audit-ready records and traceable related-party transactions, the conditions behind QFZP status stay in view.
Qualifying vs non-qualifying revenue
De-minimis monitoring
Audit-ready IFRS accounts
Related-party transactions traced
FAQ
QFZP questions, answered
What is a Qualifying Free Zone Person?
A Qualifying Free Zone Person (QFZP) is a free-zone business that meets all the conditions in the Corporate Tax rules and so benefits from 0% Corporate Tax on its qualifying income and 9% on its non-qualifying income. Meeting every condition — substance, qualifying income, audited statements, transfer pricing compliance, no election out, and the de-minimis rule — is essential; failing any one of them means standard Corporate Tax applies.
What rate does a QFZP pay?
A QFZP pays 0% Corporate Tax on qualifying income and 9% on non-qualifying income. Importantly, the AED 375,000 threshold that applies to mainland businesses does not apply to a QFZP — the 0% benefit is tied to qualifying income, not to a fixed income band.
What is the de-minimis rule?
The de-minimis rule caps 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. Breaching this limit causes the business to fail the QFZP conditions for the period, so non-qualifying revenue needs to be monitored throughout the year.
How is this different from the free zone Corporate Tax overview?
Our free zone Corporate Tax page is a broad overview of how Corporate Tax applies to free-zone businesses. This page is a focused deep dive into QFZP status specifically — the exact conditions, what counts as qualifying income, and how the de-minimis rule works. If you are weighing whether your business can hold and keep QFZP status, this is the detailed guide; the overview sets the wider context.
What happens if a QFZP fails a condition?
If a free-zone person fails to meet the qualifying conditions — for example breaching the de-minimis limit or lacking adequate substance — it does not qualify as a QFZP for that period. Standard Corporate Tax then applies, and the business is generally disqualified from the regime for a number of following tax periods, so maintaining every condition continuously matters.
Can a QFZP claim Small Business Relief?
No. Small Business Relief is not available to Qualifying Free Zone Persons. The two regimes are mutually exclusive: a QFZP relies on the 0% qualifying-income treatment, while Small Business Relief is a separate transitional relief for eligible businesses with revenue of AED 3,000,000 or less. A free-zone business should decide which route fits before relying on either.
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