Free zone corporate tax: the QFZP rules
0% is a test you must keep passing, not a default. Qualifying income, the de minimis cliff, and what it takes to hold the rate in 2026.
Quick answer
A UAE free zone company is not automatically tax-free. The 0% corporate tax rate applies only to a Qualifying Free Zone Person (QFZP), and only on its qualifying income — everything else is taxed at the standard 9%. To keep QFZP status you must maintain real substance in the free zone, earn qualifying income, keep non-qualifying revenue under the de minimis limit (the lower of 5% of total revenue or AED 5 million), comply with transfer pricing rules, and prepare audited financial statements. Fail any condition and you lose the 0% rate for that year and the next four tax periods.
The QFZP test — every condition, all at once
Under Article 18 of Federal Decree-Law No. 47 of 2022 and Cabinet Decision No. 100 of 2023, a free zone entity is treated as a QFZP only while it meets all of the following together:
- Free zone juridical person — a company or branch incorporated or registered in a free zone (individual freelancers don't qualify).
- Adequate substance — real staff, assets and operating expenditure in the free zone, proportionate to the activity.
- Qualifying income — from the activities on the official qualifying list (currently Ministerial Decision No. 229 of 2025, applying retroactively from June 2023).
- No election into 9% — a free zone person may opt into the standard regime; once elected, the 0% is gone.
- Transfer pricing compliance — arm's-length dealings with related parties, with documentation.
- De minimis respected — non-qualifying revenue stays at or below the lower of 5% of total revenue or AED 5 million.
- Audited financial statements — prepared and maintained annually.
What counts as qualifying income
Broadly: income from transactions with other free zone persons (where they are the beneficial recipient and the activity isn't excluded), income from the listed qualifying activities even with mainland or foreign customers — manufacturing, holding of shares, treasury and financing of related parties, logistics and distribution in or from a designated zone, and others on the list — and qualifying intellectual property income. Excluded activities (for example most dealings with natural persons, banking, insurance, and certain UAE immovable-property income) never qualify, whoever the counterparty is.
The de minimis trap
The de minimis rule gives a small tolerance for incidental non-qualifying revenue — but it is a cliff, not a slope. Cross the threshold by a single dirham and QFZP status is lost for the current tax period and the four that follow: five years of standard 9% taxation on your entire taxable income. Two features make it harsher than it looks. First, a QFZP does not get the 0% band on the first AED 375,000 that ordinary companies get, and cannot use Small Business Relief — the regimes don't stack. Second, some revenue (like permanent-establishment income) sits outside the de minimis calculation but is still simply taxed at 9%. Tracking the ratio monthly, not at year-end, is the only safe way to run it.
Compliance still applies at 0%
A QFZP registers for corporate tax, files a full return by the normal nine-month deadline, maintains audited accounts, and keeps transfer pricing documentation. The 0% is a rate applied through the return — not an exemption from the return. See our corporate tax deadline guide for the 2026 filing dates.
How ETX helps
ETX keeps free zone books clean enough to defend the 0%: revenue tagged by counterparty and activity so the qualifying/non-qualifying split — and your live de minimis ratio — is visible all year, ledgers that reconcile to your VAT filings, and CT-ready figures at year end. The KWS advisory team, itself based in Meydan Free Zone, can review QFZP eligibility and prepare the return as a managed service. ETX is not an FTA-accredited tax agent; eligibility assessment and filings are handled with the KWS advisory team from your data. Explore corporate tax software or sector guides.
FAQ
Is a free zone company automatically exempt from UAE corporate tax?
No. Only a Qualifying Free Zone Person gets 0%, and only on qualifying income. Non-qualifying income is taxed at 9%, and a company that fails the conditions is taxed at 9% on everything.
What is the de minimis threshold for QFZP?
Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million in a tax period.
What happens if I breach the conditions?
QFZP status is lost for that tax period and the following four — standard 9% applies to all taxable income for the whole window.
Does a QFZP get the 0% on the first AED 375,000?
No. The AED 375,000 nil band and Small Business Relief are not available to a QFZP — the free zone regime replaces them, it doesn't add to them.
Do QFZPs need audited financial statements?
Yes — audited financial statements are a standing condition of the regime.
Based on Federal Decree-Law 47 of 2022, Cabinet Decision 100 of 2023 and Ministerial Decision 229 of 2025, current as of August 2026. Free zone rules are detailed and fact-specific — take advice on your own structure before relying on the 0% rate. General information, not tax advice.