UAE Qualifying Free Zone Person: who really pays 0% tax

A free zone company does not get 0% corporate tax automatically. The zero rate applies only to a Qualifying Free Zone Person (QFZP), and only to qualifying income. To become a QFZP, a company must meet five conditions at the same time: real presence in the zone, qualifying activities, a limit on "other" income (de minimis), audited financial statements and compliance with transfer pricing rules.

In practice the regime suits manufacturing, logistics, goods trading through designated zones, holding companies, and treasury and headquarters functions. A consulting or IT company with clients outside the free zone usually does not qualify, and its profit is taxed under the general rules: 0% up to AED 375,000 and 9% above. For such companies Small Business Relief is more beneficial as long as revenue stays at or below AED 3 million.

Let us go through the conditions in order and show where companies lose the status.

The five QFZP conditions

In addition, the company must not have elected the general regime voluntarily. If even one condition is breached in a given year, the status is lost for that year and the next 4 tax periods, that is, for 5 years.

Which activities qualify

The list is set by Ministerial Decision No. 229 of 2025, which replaced the earlier Decision No. 265 of 2023 and applies retroactively from 1 June 2023. Qualifying activities are:

• manufacturing and processing of goods;
• trading in qualifying commodities (metals, energy and agricultural commodities quoted on recognised exchanges or by pricing agencies);
• holding shares and other securities;
• ship ownership, management and operation;
• reinsurance, fund management and asset management;
• headquarters functions and treasury operations for related parties;
• aircraft leasing;
• distribution of goods from a designated zone;
• logistics services;
• ancillary activities directly linked to the above.

Excluded activities always produce non-qualifying income: most transactions with individuals, banking, insurance (other than reinsurance), financing and leasing, most real estate transactions, and the ownership and exploitation of intellectual property.

Qualifying income: who the company works with

It matters not only what the company does, but who it does it with. In simple terms:

This leads to the main practical conclusion. An IT company in IFZA or Meydan that develops software for clients in Europe or Central Asia earns income from a non-qualifying activity with companies outside free zones. If that income exceeds 5% of revenue, QFZP status is not available, and the company pays tax under the general rules. This is not a registration mistake but how the law is designed.

How the de minimis rule works

Non-qualifying income is allowed, but within the lower of two amounts: 5% of total revenue or AED 5 million. Income from permanent establishments and some real estate income is excluded from the calculation and treated separately.

If the status is kept, qualifying income is taxed at 0%, and non-qualifying income within the de minimis limit is also taxed at 0%. Income attributed to permanent establishments and certain real estate transactions is taxed separately at 9%.

Example: two companies in the same free zone

Take two companies with the same profit of AED 2,000,000 and revenue of AED 6,000,000.

The AED 146,250 annual difference is explained not by the choice of free zone but by the activity and the client mix. The IT company would get the same result in any other free zone. That is why we discuss the tax model before registration, not after the first return.

Substance and audit: what they cost

The presence requirement means the core activity is carried out in the free zone, not just registered there. A flexi desk with no staff looks weak for a trading or holding structure with large turnover. Outsourcing some functions within the free zone is allowed, provided the company keeps control. So when you register a free zone company, it is better to choose the office format with your future tax regime in mind.

An audit is mandatory for a QFZP even with revenue of AED 500,000. As of October 2026, an audit for a small UAE company starts from a few thousand AED per year, so check with an auditor registered in your free zone. If the tax saving is smaller than these costs, QFZP status makes no sense. We calculate both scenarios for our accounting clients before the first return is filed.

QFZP or Small Business Relief

For a small service company we almost always recommend SBR, see Small Business Relief for details. QFZP is justified for trading, logistics, manufacturing and for a holding company in a group, as we explain in Holding company in the UAE.

What changed in 2026

• A new list of activities. Ministerial Decisions No. 229 of 2025 and No. 230 of 2025 (on qualifying commodities) replaced the 2023 list and apply retroactively from 1 June 2023. Companies that filed returns as QFZPs should review their past periods.
• Audit under new rules. Ministerial Decision No. 84 of 2025 sets out who prepares audited financial statements and how. For a QFZP they are mandatory regardless of revenue.
• Late payment penalties. From 14 April 2026, late payment penalties on UAE taxes are calculated at 14% per year.

FAQ

If a company is not a QFZP, does it pay 9% on all profit?

No. It pays under the general rules: 0% on profit up to AED 375,000 and 9% on profit above that amount. With revenue up to AED 3 million it can elect Small Business Relief and pay 0%.

Can a company opt out of QFZP status in advance?

Yes, a company can elect the general regime. But that election applies to the current period and the next 4, so the decision should be made with a 5-year horizon.

Does a QFZP need to register with the FTA?

Yes, registration and an annual return are mandatory for all free zone companies. QFZP status is claimed in the return.

Does QFZP work for trading with the UAE mainland?

Trading in qualifying commodities and distribution from a designated zone can produce qualifying income. Selling goods to individuals or retail on the mainland is almost always non-qualifying. Every supply chain is worth reviewing before you choose a free zone.

Does a QFZP need transfer pricing analysis if it has few related-party transactions?

The arm's length rule applies to any related-party transaction, including with the owner. If the amounts are small, contracts and a price justification are enough. A full documentation package (master file and local file) is only required for large companies and groups, and the related-party disclosure form is filed with the return once the set threshold is exceeded.

Sources

• Federal Tax Authority, Free Zone Persons guide: tax.gov.ae
• UAE Ministry of Finance, Cabinet Decision No. 100 of 2023, Ministerial Decisions No. 229 and 230 of 2025: mof.gov.ae
• Federal Decree-Law No. 47 of 2022: uaelegislation.gov.ae
• Free zones: ifza.com, meydanfz.ae, dmcc.ae, rakez.com