If you incorporated in DMCC, IFZA, DIFC, or any UAE free zone, you have probably heard that free zone companies pay 0% corporate tax. That is only true for Qualifying Free Zone Persons (QFZPs) on qualifying income — and the rules are stricter than most founders expect.
This guide breaks down QFZP eligibility, substance requirements, qualifying activities, and the mistakes that push free zone companies onto the 9% rate.
1. What is a Qualifying Free Zone Person?
A QFZP is a free zone entity that elects — by default unless opted out — to be taxed at 0% on qualifying income and 9% on non-qualifying income. To remain a QFZP you must meet ongoing conditions every tax period, not just at incorporation.
2. Qualifying vs non-qualifying income
Qualifying income generally arises from qualifying activities conducted with persons who are not related parties, subject to specific exclusions in the law and cabinet decisions.
Non-qualifying income includes income from excluded activities, dealings with mainland permanent establishments in certain cases, and income above de minimis thresholds from non-qualifying sources.
Examples that often surprise founders:
- Passive rental income from UAE property may not qualify
- IP licensing to related group companies needs transfer pricing support
- Consulting revenue from mainland clients may affect QFZP status depending on structure
3. Substance requirements
The FTA expects real economic activity in the UAE. Substance typically means:
- Adequate full-time employees physically present in the UAE
- Sufficient operating expenditure incurred in the UAE
- Core income-generating activities conducted in or from the free zone
- Assets and decision-making linked to the UAE entity
A licence with a flexi-desk and no employees is a red flag. Banks and auditors increasingly ask for substance evidence alongside tax elections.
4. The de minimis rule
If non-qualifying revenue exceeds the statutory de minimis threshold (percentage and absolute cap set by FTA guidance), the entity may lose QFZP status for the entire period — not just on the excess income. Model your revenue mix before year-end, not after.
5. QFZP considerations by free zone
DMCC / JAFZA / RAKEZ: Trading and service companies — watch mainland delivery and related-party sales.
IFZA / Meydan: Popular with SMEs — ensure activity codes match actual operations.
DIFC / ADGM: Financial services entities — additional DFSA/FSRA rules may interact with CT treatment.
Free zone name does not change the QFZP test — the law applies uniformly. What matters is activity, substance, and income character.
6. Common QFZP mistakes
- Assuming incorporation equals 0% tax forever
- No audited financial statements when required
- Mainland branch income not separated in CT return
- Missing CT registration because "we are in a free zone"
- Electing Small Business Relief when QFZP is more appropriate (they are mutually exclusive)
We run QFZP assessments for DMCC, IFZA, DIFC, and Meydan clients before year-end elections. Book a partner call if your accountant has not reviewed your free zone CT position yet.
Educational guide only. QFZP rules are complex and fact-specific. Obtain professional advice before filing elections.
Fellow Chartered Accountant (ICAI), ex-EY Tax & Advisory, and COP holder with an LLB. Arsalaan leads Shaikh Associates' UAE tax practice — 14 years in practice and 3,000+ entities advised. Connect on LinkedIn → · Full profile →
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Frequently asked questions
What is a Qualifying Free Zone Person (QFZP)?
A QFZP is a free zone entity that meets FTA conditions to pay 0% corporate tax on qualifying income, provided it maintains adequate substance in the UAE and does not elect out.
Can a DMCC company be a QFZP?
Yes, if it meets qualifying activity, substance, de minimis, and audited financial statement requirements. DMCC companies with mainland branches or disqualifying income need careful structuring.
What is qualifying income for QFZP?
Income from qualifying activities with unrelated persons, subject to specific exclusions. Related-party transactions and certain passive income may not qualify.