If you own or plan to set up a business in the UAE, you may have heard about the special tax benefits available for Free Zone companies.
Among these benefits, the status of Qualifying Free Zone Person (QFZP) stands out because it can mean paying 0% corporate tax on certain income.
But not all Free Zone businesses automatically qualify. There are specific rules you must meet, and missing even one can cost you this valuable advantage.
In this guide, we’ll break down what QFZP means, how to qualify, and what to avoid so you can maximize your tax savings.
If lowering your tax burden while staying compliant sounds good, read on! this could be the most profitable few minutes you spend today.
📚 Also read: How to Register for Corporate Tax in UAE
What is a Qualifying Free Zone Person in UAE Corporate Tax?
A Qualifying Free Zone Person (QFZP) is a juridical person registered in one of the UAE’s Free Zones that meets conditions set under Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023.
This status allows them to enjoy a 0% corporate tax rate on qualifying income while paying 9% on other taxable income.
Benefits of Being a Qualifying Free Zone Person
Qualifying for QFZP status can give you a major financial edge over mainland businesses. The reduced tax rate allows you to reinvest more into growth, staff, and innovation.
Key benefits include:
- ✅ 0% corporate tax on qualifying income
- ✅ Access to Free Zone infrastructure and facilities
- ✅ International business opportunities with fewer restrictions
- ✅ More funds available for business expansion
Eligibility Criteria for Qualifying Free Zone Person (QFZP)
To enjoy the tax benefits, you must meet all conditions every tax period. Failure to do so means losing your QFZP status for that period and the next four tax periods.
✅ Must Be a Licensed Free Zone Entity
- Hold a valid Free Zone business license
- Ensure your license covers your actual business activities
✅ Adequate Substance in the UAE
- Maintain a physical office in the Free Zone
- Employ enough staff and resources to run operations
✅ Prepare Audited Financial Statements
- Prepare and maintain audited financial statements for each tax period, even if revenue is low
- Provide these to the Federal Tax Authority if requested
✅ Qualifying Income Rules
Income is considered Qualifying if:
- It comes from transactions with another Free Zone Person where they are the beneficial recipient, or
- It comes from a Qualifying Activity with a Non-Free Zone Person, and
- It is not an Excluded Activity, and
- The de minimis limit for non-qualifying income is not exceeded.
💡 De minimis rule: Non-qualifying income must not exceed the lower of 5% of total revenue or AED 5,000,000 in a tax period.
✅ Compliance with Transfer Pricing Rules
- Ensure all related-party transactions follow fair market value standards
✅ No Election for Mainland Tax
- You must not elect to be subject to the standard corporate tax regime
Qualifying vs Non-Qualifying Income
Not all income earned by a QFZP will be tax-free. Some mainland transactions may still qualify if they meet the rules.
Income from a mainland customer can still be qualifying if it is a listed Qualifying Activity, not an Excluded Activity, and the de minimis limit is respected.
Examples of Qualifying Income
- ✅ Transactions with other Free Zone Persons where they are the beneficial recipient
- ✅ Listed Qualifying Activities with Non-Free Zone Persons, such as:
- Manufacturing or processing of goods
- Holding of shares and securities
- Ownership, management, and operation of ships
- Reinsurance services
- Fund and wealth management (regulated)
- Headquarters services to related parties
- Treasury and financing services to related parties
- Aircraft financing and leasing
- Distribution in or from a Designated Zone to resellers or processors
- Logistics services
Examples of Non-Qualifying Income
- ✅ Excluded Activities, including:
- Transactions with natural persons (unless certain exceptions apply)
- Banking activities
- Insurance activities not listed as qualifying
- Financing activities outside permitted scope
- Income from immovable property except certain Free Zone commercial property
- ✅ Real estate income rules:
- Income from Free Zone commercial property is non-qualifying if the transaction is with a Non-Free Zone Person
- All income from non-commercial property in a Free Zone is taxable
Corporate Tax Rates for Qualifying Free Zone Persons
QFZPs benefit from two tax rates depending on income type:
- ✅ 0% corporate tax for qualifying income
- ✅ 9% corporate tax for non-qualifying income
💡 Note: The standard 0% band up to AED 375,000 does not apply to a QFZP. Any non-qualifying income is taxed at 9%.
If you earn both, keep accurate accounts to separate qualifying from non-qualifying revenue.
📚 Also read: VAT Returns in UAE
Compliance Obligations for QFZPs
Once you qualify, you must maintain compliance every year to keep your benefits.
✅ Annual Corporate Tax Filing
Even with a 0% rate, you must file a corporate tax return for each tax period.
✅ Proper Record-Keeping
Maintain detailed financial and operational records to prove eligibility.
✅ Economic Substance Reporting
Show that you have sufficient operations in the UAE to meet substance requirements.
✅ Audited Financial Statements
Prepare and maintain audited financial statements each tax period and provide them to the FTA if requested.
How to Maintain Your Qualifying Free Zone Person Status
Maintaining QFZP status requires continuous monitoring of your business operations.
Tips for staying compliant:
- ✅ Review business activities and revenue mix annually
- ✅ Keep your physical presence and staffing at required levels
- ✅ Monitor non-qualifying income to ensure you remain within the de minimis limit
Steps to Become a Qualifying Free Zone Person
Getting QFZP status requires proper planning from the start.
- ✅ Choose the Right Free Zone – Select one that aligns with your target market and services.
- ✅ Apply for the Correct License – Ensure it matches the qualifying activities you plan to perform.
- ✅ Set Up Adequate Operations – Have an office, staff, and equipment in the Free Zone.
- ✅ Align with Qualifying Rules – Focus on income sources that are tax-exempt under the law.
- ✅ Register for Corporate Tax as a QFZP – Complete the registration with accurate documents.
📚 Also read: How to Start a Business in UAE 2025
Common Mistakes That Can Disqualify You
Avoiding these common errors will help preserve your QFZP status:
- ❌ Failing to meet substance requirements
- ❌ Generating too much revenue from non-qualifying activities
- ❌ Missing the audited financial statement requirement
- ❌ Poor bookkeeping and incomplete filings
📚 Also read: Corporate Tax Filing Deadline
Conclusion
Qualifying as a Free Zone Person under UAE corporate tax rules can mean huge tax savings, but it comes with strict rules and ongoing compliance needs.
By knowing the criteria, keeping operations in line with qualifying activities, and maintaining proper records, you can maximize your 0% tax benefits.
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FAQs About Qualifying Free Zone Person UAE Corporate Tax
Is freezone exempted from corporate tax in the UAE?
Free Zone businesses are not automatically exempt from corporate tax. Only those that qualify as a QFZP and meet all legal requirements can get the 0% tax rate on qualifying income. Others may still have to pay the standard rate.
Who is a qualifying free zone person in the UAE?
A qualifying free zone person is a juridical entity registered in a UAE Free Zone that meets the conditions under Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023. This includes having adequate substance, earning qualifying income, meeting the de minimis limit, preparing audited financials, and complying with transfer pricing.
Who is a free zone person?
A Free Zone Person is a juridical entity registered in a UAE Free Zone; natural persons are not Free Zone Persons for corporate tax purposes.
Who is not eligible for corporate tax in the UAE?
Businesses that fail to meet QFZP criteria, elect into the standard corporate tax regime, or engage mainly in excluded activities are not eligible for reduced tax rates. They will pay the standard 9% rate on their taxable income.
