Qualifying Free Zone Person (0% corporate tax)

A Qualifying Free Zone Person (QFZP) is a company or branch registered in a UAE free zone that meets the conditions in Article 18 of the Corporate Tax Law. A QFZP pays 0% corporate tax on its Qualifying Income, and 9% on the limited categories of income the regime leaves out. Holding a free-zone licence makes a company a Free Zone Person. It does not by itself make the company a QFZP.

Individuals, sole establishments and unincorporated partnerships cannot be Free Zone Persons, even if they work from a free zone. A company incorporated on the mainland does not become a Free Zone Person because its managers sit in a free zone.

The FTA treats a Free Zone Person as a QFZP for a tax period unless it fails a condition or elects out. The law provides no separate QFZP certificate or approval. Status is tested for each tax period and declared in the corporate tax return.

The company must meet all of these conditions throughout the tax period: it keeps adequate substance in the free zone; it earns Qualifying Income; it has not elected to be taxed under the standard rules; it complies with the arm's-length and transfer-pricing documentation rules; its non-qualifying revenue stays within the de minimis limit; and it prepares audited financial statements, whatever its revenue.

Substance means the core income-generating activities happen in a free zone, with adequate assets, qualified full-time staff and operating spend for each activity. For the distribution activity, that work must happen in a Designated Zone. Core work can be outsourced only to another person in a free zone, and only under adequate supervision. The FTA has said, in a published summary of private clarifications, that a shared desk can be enough only if it matches the scale of the activity, and that a property company with no staff may fail the test.

A company that fails any condition at any point in a tax period loses QFZP status from the start of that period and for the next four tax periods. A calendar-year company that fails in 2026 is taxed under the standard rules for 2026 to 2030 and is tested again for 2031. Electing out has the same five-period effect.

Qualifying Income comes from four sources: transactions with another Free Zone Person that is the Beneficial Recipient of the goods or services, unless the activity is excluded; transactions with anyone else, but only for a listed Qualifying Activity that is not excluded; a calculated share of income from qualifying intellectual property, such as patents and copyrighted software the company developed itself; and any other income, while the company stays within the de minimis limit.

The Beneficial Recipient is the party that uses and enjoys the service or goods, with no obligation to pass them on. A free-zone customer that buys services only to resell them to a mainland client is not the Beneficial Recipient. A seller may rely on a written confirmation from its free-zone customer unless it has reason to doubt it.

A Non-Free Zone Person is anyone that is not a Free Zone Person. Mainland UAE customers and customers abroad fall in the same category, so exporting a service does not make it qualifying.

Some income is taxed at 9% even inside a QFZP and is left out of the de minimis test: income attributable to a mainland or foreign branch, most income from real estate, and intellectual-property income outside the qualifying share.

Ministerial Decision 229 of 2025 sets the current list and applies from 1 June 2023. The Qualifying Activities are manufacturing; processing; trading of commodities with a quoted price; holding shares for investment; ship ownership, management and operation; reinsurance; regulated fund management; regulated wealth and investment management; headquarter services to related parties; treasury and financing to related parties or for the company's own account; aircraft financing and leasing; distribution of goods in or from a Designated Zone; logistics services; and activities ancillary to any of these.

General services are not on the list. Consulting, software development, marketing, design and retail are among the activities it leaves out.

Excluded activities produce non-qualifying revenue even when the customer is in a free zone. They are transactions with individuals (apart from ships, regulated fund or wealth management and aircraft leasing), banking, insurance other than reinsurance and captive insurance, regulated finance and leasing outside the listed exceptions, and most real estate.

Distribution qualifies only from a Designated Zone recognised for corporate tax, and only for sales to customers who resell or process the goods, or to public benefit entities. The FTA confirmed in October 2026 that a VAT Designated Zone is not automatically a corporate tax Designated Zone.

Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower. Non-qualifying revenue is revenue from excluded activities, from non-listed activities with mainland or foreign customers, and from free-zone customers that are not the Beneficial Recipient. Branch, most real-estate and non-qualifying IP revenue is left out of both figures.

Worked example: a free-zone IT consultancy with a calendar tax year earns AED 1,900,000 in 2026 from services to free-zone companies that are the Beneficial Recipients, AED 60,000 from consulting for a mainland company and AED 25,000 in training fees paid by individuals. Total revenue is AED 1,985,000. Non-qualifying revenue is AED 85,000, or 4.28%, below the limit of AED 99,250 (5% of total revenue, which is lower than AED 5 million). Provided it meets the other conditions, the company stays a QFZP, and all three lines are Qualifying Income at 0%, because Cabinet Decision 100 of 2023 treats other income within the de minimis limit as qualifying.

If the mainland consulting were AED 160,000 instead, total revenue would be AED 2,085,000 and non-qualifying revenue AED 185,000, or 8.87%, above the AED 104,250 limit. The company would stop being a QFZP for 2026 and be taxed under the standard rules on all its 2026 taxable income, 0% up to AED 375,000 and 9% above, and it would stay outside the regime for 2027 to 2030.

At larger sizes the AED 5 million cap applies. A company with AED 120 million of revenue and AED 5.5 million of non-qualifying revenue is at 4.58%, under 5%, but above AED 5 million, so it fails.

Consultancy or agency selling to mainland or overseas companies: consulting is not a Qualifying Activity, so revenue from mainland and foreign clients is non-qualifying and the de minimis limit governs the outcome. Revenue from free-zone clients that are the Beneficial Recipient can be qualifying.

Software company: building software is not manufacturing of goods, and distribution does not cover software or licences. Licence or royalty income can be qualifying only through the qualifying-IP calculation, and only for software the company developed itself. IP income outside that share is taxed at 9% and left out of the de minimis test. Software services sold to mainland or foreign clients follow the consultancy pattern.

E-commerce selling to consumers: sales to individuals are excluded activities wherever the buyer lives, and distribution counts only for sales to customers who resell or process the goods. A business selling mainly to consumers will normally exceed the de minimis limit and is then taxed under the standard rules.

Holding company: holding shares for investment for 12 months or more is a Qualifying Activity. The substance condition still applies. Each company's result depends on its own contracts and facts.

A QFZP must register for corporate tax and file a return within nine months of each period end, even if it owes nothing. It keeps records for seven years and must have audited financial statements whatever its revenue. One set of accounts is enough, but it must document how it calculated Qualifying Income.

A QFZP cannot elect Small Business Relief or use group reliefs. It does not get the ordinary AED 375,000 0% band, and a loss on its qualifying business cannot be carried forward. A free-zone company may elect to be taxed under the standard rules, which makes these reliefs available if their own conditions are met; that election also lasts for the period plus four more.

Groups with consolidated revenue of EUR 750 million or more are also within the 15% Domestic Minimum Top-up Tax from 2025. Corporate tax free-zone status and VAT designated-zone status are separate tests.

Ask your free-zone authority whether your premises are in a Free Zone, or a Designated Zone, for corporate tax purposes. Map each revenue stream to one of the four Qualifying Income sources or to non-qualifying revenue, test the de minimis limit before the year ends, and confirm substance (staff, premises, spending) for each activity. This guide summarises published rules and does not determine any company's tax status.