Qualifying Free Zone Person (QFZP): 0% UAE Corporate Tax Explained

A Qualifying Free Zone Person (QFZP) is a UAE free-zone company that qualifies for the 0% corporate tax rate on its qualifying income — with a 9% rate on any income that is not qualifying. It is the mechanism that preserves the long-standing tax advantage of the UAE's free zones under Federal Decree-Law No. 47 of 2022 on Corporate Tax. Being located in a free zone is not enough on its own: a company only becomes a QFZP if it meets a specific set of conditions — and keeps meeting them every year. This guide explains those conditions, the difference between qualifying and excluded activities, the de minimis rule, and how to protect your 0% status.

UAE Corporate Tax applies to financial years beginning on or after 1 June 2023, at a headline rate of 9% on taxable income above AED 375,000 (0% on the first AED 375,000). A separate 0% rate for Qualifying Free Zone Persons on Qualifying Income sits alongside this, under Article 18 of the law and Cabinet Decision No. 100 of 2023. The rules below are summarised for general guidance — always confirm the current position for your specific entity with the FTA or a qualified tax adviser.

What is a Qualifying Free Zone Person?

A Free Zone Person is any juridical person — a company or a branch — incorporated or registered in one of the UAE's free zones. A Qualifying Free Zone Person is a Free Zone Person that meets all of the conditions in Article 18 of the Corporate Tax Law and the related Cabinet Decisions. Only a QFZP benefits from the 0% rate on qualifying income; a free-zone company that fails the test is taxed like any other business — 9% on taxable income above AED 375,000.

QFZP conditions — the Article 18 test

To be a Qualifying Free Zone Person for a tax period, a free-zone company must:

• Maintain adequate substance in the UAE free zone — its core income-generating activities, staff, assets and expenditure must genuinely be in the zone (some outsourcing to related parties in the zone is possible, with adequate supervision).
• Derive qualifying income as defined in Cabinet Decision No. 100 of 2023.
• Not have elected to be subject to the standard 9% corporate tax regime.
• Comply with the arm's-length principle and transfer pricing rules, and keep transfer pricing documentation.
• Prepare and maintain audited financial statements.
• Meet the de minimis requirement (explained below).

These conditions are tested every tax period. Fail any one of them and the company loses QFZP status — not just for that year, but with lasting consequences.

Qualifying income and the de minimis rule

Qualifying income broadly comes from transactions with other free-zone persons and from carrying on "qualifying activities". Income from "excluded activities", and income that breaches the de minimis limit, is not qualifying.

The de minimis requirement caps how much non-qualifying revenue a QFZP can earn while still keeping the 0% rate. It is satisfied where non-qualifying revenue does not exceed the lower of:

• 5% of the company's total revenue in the tax period; or
• AED 5,000,000.

Go over that limit and the company fails the de minimis test — and therefore loses QFZP status for the period.

Qualifying activities vs excluded activities

The qualifying and excluded activities are set out in Ministerial Decision No. 265 of 2023 (since updated by Ministerial Decision No. 229 of 2025). In outline:

The full definitions, conditions and exceptions are detailed — some activities only qualify when carried out for other free-zone persons, or from a "designated zone". Confirm your specific activity against the current Ministerial Decision and with the FTA before relying on the 0% rate.

What happens if you fail the QFZP conditions?

Losing QFZP status is not a one-year problem. If a free-zone company fails to meet the qualifying conditions — for example, it breaches the de minimis limit or stops keeping adequate substance — it ceases to be a Qualifying Free Zone Person from the start of that tax period and for the following four tax periods, during which it is taxed under the standard regime (9% above AED 375,000). This five-year "cliff edge" is why annual monitoring matters so much.

QFZP, Small Business Relief and the standard 9% rate

A free-zone company essentially has three possible positions:

• QFZP — 0% on qualifying income, 9% on the rest, provided all conditions are met.
• Standard 9% — if it elects out of the free-zone regime, or fails the conditions: 0% on the first AED 375,000 and 9% above.
• Small Business Relief — resident persons with revenue at or below AED 3 million can elect to be treated as having no taxable income, for tax periods ending on or before 31 December 2026 (a QFZP applying the free-zone regime is generally outside Small Business Relief).

How to keep your QFZP status

1. Map your income — separate qualifying from non-qualifying revenue, and test it against the de minimis limit through the year, not just at year-end.
2. Hold real substance in the zone — people, premises, assets and decision-making genuinely located in the free zone.
3. Keep transfer pricing in order — arm's-length pricing for related-party dealings, with documentation.
4. Prepare audited financial statements — mandatory for every QFZP claiming the 0% rate.
5. Re-test annually — QFZP status is confirmed each tax period; a change of activity or a large non-qualifying contract can tip you over.

How Avyanco helps

Avyanco's Chartered-Accountant-led tax team assesses and maintains QFZP status as part of an end-to-end corporate tax practice — substance review, qualifying-income segmentation, de minimis analysis, transfer pricing and audited financial statements — so your free-zone company preserves its 0% rate through each annual re-test. We also advise on the right free zone at setup and on your corporate tax registration. Talk to our tax team to review your QFZP position.