GULF CONSULT Tax Team on October 18, 2026

Qualifying Free Zone Person (QFZP): Is Your Free Zone Company Eligible for 0% UAE Corporate Tax?

The six QFZP conditions, the de minimis test and the five-year penalty for failing one: how free zone companies keep the 0% corporate tax rate.

2 min read

Being registered in a free zone does not, on its own, mean paying 0% corporate tax. The 0% rate applies only to a Qualifying Free Zone Person (QFZP), and only on its qualifying income. Fail one condition in one year and the company pays 9% on all its taxable income for that year and the next four.

The Six Conditions

A free zone person must meet every one of these, every tax period:

Maintain adequate substance in the UAE: real staff, premises and spending for its core activities
Derive qualifying income
Meet the de minimis requirement on non-qualifying revenue
Not elect to be taxed at the regular rates
Comply with the arm's-length principle and transfer pricing documentation rules
Prepare and maintain audited financial statements

What Counts as Qualifying Income

Broadly, qualifying income is income from transactions with other free zone persons, and income from listed qualifying activities with anyone. Qualifying activities include manufacturing and processing, trading of qualifying commodities, fund and wealth management, headquarter and treasury services to related parties, and distribution of goods in or from a designated zone.

Transactions with individuals are generally treated as an excluded activity, which is where many service businesses fall down.

The De Minimis Test

Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower. A company with AED 20 million of revenue therefore has a ceiling of AED 1 million, not AED 5 million.

What Happens if You Fail

Failing any condition removes QFZP status for the current tax period and the following four. All taxable income in those five years is taxed at the regular rates.

Distributors in designated zones now face an extra step: under FTA Decision No. 6 of 2026 they need an agreed-upon procedures report from an independent auditor.

How to Stay Qualified

Track non-qualifying revenue every month, not at year-end. Keep substance records such as payroll, leases and board minutes in the UAE, price related-party transactions at arm's length, and book the statutory audit early.

Frequently Asked Questions

Do all free zone companies pay 0% corporate tax?

No. Only Qualifying Free Zone Persons pay 0%, and only on qualifying income. Other free zone companies pay 9% on taxable income above AED 375,000.

What is the de minimis threshold for a QFZP?

Non-qualifying revenue must stay within 5% of total revenue or AED 5 million, whichever is lower.

How long does a free zone company lose QFZP status for?

For the tax period in which it fails a condition and the following four tax periods: five years in total.

Does a QFZP need audited financial statements?

Yes. Maintaining audited financial statements is one of the conditions for QFZP status.

Sources

This article is general information, not advice for your situation. Rules change; check the current position or speak to an advisor before acting.

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