Qualifying Free Zone Person (QFZP) Advisory
Keep your free zone company on the 0% Corporate Tax rate. We map every revenue stream, test the de minimis limit, and build the substance, audit and transfer pricing file the FTA expects.
QFZP is the most valuable relief in UAE Corporate Tax, and the easiest to lose without noticing. A single mainland customer contract, a sale to an individual, or rental income from the wrong property can push non-qualifying revenue over the limit and cost a company its 0% rate for five years.
We give free zone companies a clear answer before they file: which income qualifies, which doesn't, whether the de minimis test is met, and what to fix while there is still time. Then we keep it under review every month, so there are no year-end surprises.
The QFZP conditions, all of which must be met
| Condition | What it means in practice |
|---|---|
| Free zone person | Incorporated, established or registered in a UAE free zone, including a branch of a non-resident person. |
| Adequate substance | Core income-generating activities carried out in the free zone, with adequate assets, qualified full-time staff and operating expenditure. Outsourcing is allowed if it happens in the free zone and you supervise it. |
| Qualifying income | Income must come from qualifying sources (see below), with non-qualifying revenue inside the de minimis limit. |
| Audited financial statements | Required for every QFZP regardless of revenue, under Ministerial Decision No. 84 of 2025. |
| Transfer pricing | Transactions with related parties and connected persons at arm's length, with documentation to support them. |
| No election out | The company must not have elected to be taxed at the standard rates. QFZPs cannot also claim Small Business Relief. |
What counts as qualifying income
- Income from other free zone persons, provided they are the beneficial recipient and the income is not from an excluded activity.
- Income from anyone else (including mainland companies), but only from a qualifying activity that is not excluded.
- Income from qualifying intellectual property, such as patents and copyrighted software, calculated under the prescribed formula.
- Any other income, as long as the de minimis requirements are met.
The 14 qualifying activities (Ministerial Decision No. 229 of 2025)
- Manufacturing of goods or materials
- Processing of goods or materials
- Holding of shares and other securities for investment
- Ownership, management and operation of ships
- Regulated reinsurance services
- Regulated fund management services
- Regulated wealth and investment management services
- Headquarter services to related parties
- Treasury and financing services to related parties or for its own account
- Financing and leasing of aircraft, including engines and rotable components
- Distribution of goods or materials in or from a Designated Zone
- Logistics services
- Trading of qualifying commodities
- Activities ancillary to any of the above
Ministerial Decision No. 229 of 2025 replaced the earlier list (Ministerial Decision No. 265 of 2023) with effect back to 1 June 2023. It widened qualifying commodities to include industrial chemicals, associated by-products and environmental commodities such as carbon credits, where a quoted price exists. It also extended treasury services to a company's own account. Because the change is retrospective, earlier returns may be worth revisiting.
Excluded activities: always taxed at 9%
- Transactions with natural persons (individuals), except for certain qualifying activities such as ships, aircraft, fund management and wealth management
- Regulated banking, insurance (other than reinsurance), finance and leasing activities
- Owning or exploiting UAE immovable property, other than commercial property in a free zone transacted with other free zone persons
- Owning or exploiting intellectual property assets, other than qualifying IP
- Activities ancillary to any of the above
The de minimis test, with an example
Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million in the tax period. Revenue attributable to a domestic or foreign permanent establishment, and certain free zone immovable property revenue, is left out of the calculation.
| Example free zone company | Amount (AED) |
|---|---|
| Total revenue | 40,000,000 |
| 5% of total revenue | 2,000,000 |
| De minimis limit (lower of 2,000,000 and 5,000,000) | 2,000,000 |
| Consulting fees from mainland clients (non-qualifying) | 2,300,000 |
| Result | Limit breached: QFZP status lost |
The cost of that breach is not 9% on AED 300,000. It is 9% on all taxable income above AED 375,000, for this period and the next four. That is why we track the ratio monthly, not at year end.
The five-period trap
If a QFZP fails any condition at any time during a tax period, it stops being a QFZP from the start of that period and for the following four tax periods. For a calendar-year company, a breach in 2026 means standard rates for 2026 through 2030. There is no partial relief and no quick way back.
Distribution and Designated Zones
Distribution counts as a qualifying activity only when it happens in or from a Designated Zone (the zones listed for VAT purposes), the goods enter the UAE through that zone, and they are sold to a customer who resells, processes or alters them (or to a public benefit entity). Not every free zone is a Designated Zone, and selling to end consumers does not qualify. Many trading companies assume they qualify when they don't.
Quick self-check before you file
- Do you know, line by line, which of your revenue is qualifying and which isn't?
- Is non-qualifying revenue below the lower of 5% and AED 5 million, with a margin to spare?
- Do you invoice any individuals directly, even occasionally?
- Do you have real staff, premises and decision-making in the free zone?
- Are your financial statements audited, and is the audit on track for the filing deadline?
- Are related-party charges priced at arm's length and documented?
If you answered "not sure" to any of these, that is exactly what a QFZP review is for.
What we do for you
Revenue stream mapping
Every customer and income line classified as qualifying, non-qualifying, excluded or permanent establishment income, with the reasoning documented.
De minimis testing
The 5% / AED 5 million test calculated on actual and forecast revenue, monitored monthly so a breach is caught before it happens.
Substance review
Staff, premises, spend and decision-making assessed against FTA expectations, with gaps flagged and fixed.
Audit coordination
Audit-ready IFRS books and liaison with your free zone-approved auditor, so the mandatory audit is never the bottleneck.
Transfer pricing file
Related-party and connected-person transactions priced and documented at arm's length.
Return and elections
Corporate Tax return prepared with the correct QFZP position, plus advice on whether QFZP or the standard regime is better for you.
How we work with you
Diagnose
We review your licence, contracts, customers and last 12 months of revenue.
Classify
Each income stream is mapped against the qualifying and excluded activity rules.
Fix
We restructure invoicing, contracts or entities where needed, before year end.
Monitor and file
Monthly de minimis tracking, audit coordination and the Corporate Tax return.
Built for businesses like yours
Trading companies
Distribution, commodities and Designated Zone rules, plus mainland sales tracking.
Holding companies
Dividend and share-gain income, related-party financing and substance.
Service companies
Consulting and services to mainland clients are often non-qualifying. We check before you file.
Groups with free zone entities
Headquarter, treasury and intra-group services structured to qualify.
Partner-led chartered accountants in Dubai
Years in chartered practice
Big 4-trained Chartered Accountant partners on every engagement.
Businesses served
From solo founders to multinational groups across the UAE.
Partner response time
Direct WhatsApp access to a qualified CA partner, not a junior.
Frequently asked questions
Is every free zone company automatically 0% Corporate Tax?
No. Every free zone company must register and file. The 0% rate applies only to qualifying income and only while the company meets all QFZP conditions: substance, audited financial statements, arm's length transfer pricing, no election into the standard regime, and non-qualifying revenue within the de minimis limit.
What is the de minimis limit for QFZPs?
Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million in the tax period. Revenue attributable to permanent establishments and certain free zone property income is excluded from the calculation.
What happens if a QFZP breaches a condition?
It stops being a QFZP from the start of that tax period and for the next four tax periods, so all its taxable income is taxed at the standard rates (0% up to AED 375,000 and 9% above) for five periods.
Can a QFZP sell to mainland customers?
Yes, but income from mainland customers is qualifying only if it comes from a qualifying activity. Other mainland income, such as most consulting and service fees, is non-qualifying and counts towards the de minimis limit.
Do QFZPs need an audit?
Yes. Under Ministerial Decision No. 84 of 2025, every Qualifying Free Zone Person must prepare audited financial statements, regardless of revenue.
Can a free zone company claim Small Business Relief instead?
Not while it is a QFZP. A free zone company that does not qualify as a QFZP, or elects out, may be able to claim Small Business Relief if its revenue is AED 3 million or less. We model both options before you file.
Did the qualifying activities change recently?
Yes. Ministerial Decision No. 229 of 2025 replaced the earlier list with effect from 1 June 2023, widening qualifying commodities and treasury services. Earlier returns may need to be reviewed.
Talk to a partner about your situation
A free 15-minute call with a Big 4-trained Chartered Accountant. Fixed fees, no obligation.
General information based on UAE law and FTA guidance as of November 2026, not tax advice. Requirements depend on your facts; verify with the FTA or a qualified adviser before acting.