What is a
Free Zone Person?

What does 'Qualifying Free Zone Person' (QFZP) actually mean?

A QFZP enjoys 0% UAE Corporate Tax on its Qualifying Income, with 9% applying only to Non-Qualifying Income. Achieving QFZP status requires satisfying five conditions:

• Adequate substance in the UAE — real premises, employees, operating expenditure proportionate to the business.
• Derive Qualifying Income — income from Qualifying Activities or transactions with Qualifying Persons.
• Not elect to be subject to standard Corporate Tax.
• Comply with arm's length and transfer pricing principles.
• Prepare audited financial statements.

What is the de minimis test?

The de minimis test sets the maximum permitted Non-Qualifying Revenue: the lower of 5% of total revenue or AED 5 million. Breach of the de minimis test disqualifies the entity from QFZP status for that year and the following four years (a five-year cliff edge). This is the single most consequential operational threshold in the framework.

What counts as Qualifying Income?

Cabinet Decision No. 100 of 2023 defines Qualifying Activities and Qualifying Persons. In general, income derived from transactions with other Free Zone Persons qualifies; income from outside the UAE qualifies; certain qualifying activities (manufacturing, distribution of goods from designated zones, fund management, headquarter services, etc.) qualify. Income from transactions with the UAE mainland generally does not qualify unless it falls within defined exceptions.

How does QFZP interact with Pillar Two?

For multinational groups within OECD Pillar Two scope (consolidated revenue at or above EUR 750M in 2 of 4 prior years), the UAE's Qualified Domestic Minimum Top-up Tax (QDMTT) brings the group's UAE effective tax rate to 15% — neutralising the 0% QFZP benefit at the top-up level. Sub-threshold groups remain unaffected.

Does the 0% rate apply automatically?

No. The 0% rate requires election as a QFZP and ongoing satisfaction of all five tests. Many entities that consider themselves QFZP-eligible fail one or more conditions on examination — particularly substance, the de minimis test, or transfer-pricing documentation.

What income qualifies for the 0% QFZP rate?

Qualifying income includes income from transactions with other free-zone persons and income from qualifying activities — such as holding shares, fund and wealth management, headquarters and treasury services for related parties, logistics and manufacturing — subject to the exclusions for excluded activities.

What happens if a company breaches the QFZP conditions?

Breaching any condition — including exceeding the de-minimis limit for non-qualifying revenue (the lower of 5% of total revenue or AED 5 million) — disqualifies the entity from the regime for that tax period and the following four, with all income taxed at the standard 9% rate.

Does a Qualifying Free Zone Person still have to file tax returns?

Yes. QFZP status changes the rate on qualifying income to 0%, not the compliance obligations — the entity must register for Corporate Tax, maintain audited financial statements, comply with transfer-pricing rules and file an annual return like any other taxable person.