A Qualifying Free Zone Person (QFZP) pays 0% UAE Corporate Tax on qualifying income. Conditions: adequate substance in the UAE, de minimis non-qualifying income (≤ AED 5M or 5% of revenue), audited financial statements, and no election of the standard CT regime. Income from mainland UAE activities is non-qualifying and taxed at 9%.
What is a QFZP and who qualifies?
A Qualifying Free Zone Person (QFZP) is a free zone entity that meets all conditions set out in the UAE CT Law (Federal Decree-Law No. 47 of 2022) and the Cabinet Decisions issued under it. Being incorporated in a free zone is necessary but not sufficient — you must satisfy a multi-part test every tax period.
The key qualifying conditions are: (1) the entity is a juridical person incorporated or registered in a UAE free zone; (2) it maintains adequate substance in the UAE; (3) it derives qualifying income as defined; (4) it has not made an election to be subject to the standard CT regime; and (5) it files audited financial statements.
Adequate substance — the hardest condition to satisfy
Adequate substance means the QFZP must have: (a) qualified employees in the UAE conducting the core income-generating activities (CIGAs); (b) adequate operating expenditure in the UAE; and (c) physical premises in the UAE. The FTA assesses substance on a facts-and-circumstances basis, but the intent is clear — passive mailbox entities do not qualify.
Core income-generating activities must be conducted by employees of the QFZP itself (or a UAE group entity under supervision). Outsourcing CIGAs to mainland contractors — even UAE-based ones — may fail the substance test. This is the most common QFZP compliance mistake.
Qualifying vs non-qualifying income
Certain activities are excluded from QFZP status by regulation regardless of who the customer is: banking, insurance, finance and leasing, headquarter services to related parties for certain functions, IP income from embedded royalties, and ownership/exploitation of UAE moveable property (with exceptions). Check whether your actual business activity is on the excluded list.
| Income type | Qualifying? | Notes |
|---|---|---|
| Sales to other free zone entities (goods or services) | Yes | Transactions within the free zone ecosystem |
| Exports outside the UAE | Yes | Income from non-UAE customers |
| Intra-group services to related free zone entities | Conditional | Must meet arm’s-length pricing; limited to eligible activities |
| Sales to UAE mainland businesses | No | Non-qualifying; taxed at 9% |
| UAE-sourced passive income (rent from mainland) | No | Non-qualifying |
| Excluded activities (banking, insurance, finance) | No | Taxed at 9% regardless of QFZP status |
The de minimis test
A QFZP can receive some non-qualifying income without losing QFZP status, as long as it stays within the de minimis threshold: non-qualifying income must not exceed AED 5 million or 5% of total revenue, whichever is lower.
If you breach de minimis — even by AED 1 — you lose QFZP status for that entire tax period and pay 9% CT on all income above AED 375,000. There is no partial or pro-rated relief.
Free zone businesses with any mainland customers should track non-qualifying income against the de minimis limit monthly. If you approach 4% of revenue from mainland sources mid-year, you have time to restructure supply agreements or invoice through a mainland entity to avoid a full-year disqualification.
How to lose QFZP status — and what happens
QFZP status is forfeited for a tax period if any of the following occur: (a) non-qualifying income breaches de minimis; (b) substance conditions are not met; (c) audited financial statements are not prepared; (d) you elect the standard CT regime; or (e) you are disqualified by a future Cabinet Decision expanding the excluded activities list.
On losing QFZP status for a period, the entity is treated as a regular taxable person for that entire period — 9% on all income above AED 375,000. Status can be regained in subsequent periods if conditions are met again, but the current period is fully taxable.
Is your free zone business genuinely QFZP-eligible?
We assess substance adequacy, de minimis compliance, excluded activities risk, and audited accounts requirements — and advise on structuring to protect your 0% position.
Frequently asked questions
What is a QFZP in UAE Corporate Tax?+
A Qualifying Free Zone Person (QFZP) is a free zone entity that meets all QFZP conditions under the UAE CT Law — adequate substance, qualifying income, audited accounts, and no standard CT election — and therefore pays 0% CT on qualifying income and 9% on non-qualifying income.
What income qualifies for 0% CT in a free zone?+
Qualifying income typically includes income from transactions with other free zone entities, exports outside the UAE, and certain intra-group services. Income from UAE mainland customers, excluded activities (banking, insurance, etc.), and UAE moveable property is non-qualifying and taxed at 9%.
What is the de minimis test for QFZP?+
Non-qualifying income must not exceed AED 5 million or 5% of total revenue (whichever is lower). Breaching de minimis forfeits QFZP status for the entire tax period — all income above AED 375,000 is then taxed at 9%.
Does a free zone company automatically get 0% corporate tax?+
No. Being in a free zone is not enough. You must satisfy all QFZP conditions every tax period: adequate substance (qualified employees, operating expenditure, premises), qualifying income composition, audited financial statements, and no excluded activities.
What happens if a free zone company loses QFZP status?+
It is treated as a standard taxable person for that entire period — 9% CT applies to all income above AED 375,000. Status can be regained in subsequent periods if conditions are met, but there is no partial relief for the disqualified period.
Can a QFZP sell to mainland UAE customers?+
Yes, but mainland sales are non-qualifying income taxed at 9%. If mainland income exceeds the de minimis threshold (AED 5M or 5% of revenue), the entire QFZP status is lost for that period. Mainland revenue must be actively monitored.