The 0% corporate tax rate that free zones advertise is conditional, not automatic. It applies only to a Qualifying Free Zone Person (QFZP) – a free zone company that meets a strict, continuously tested set of conditions – and only to its qualifying income. This guide explains those conditions under the framework actually in force in 2026, including Ministerial Decision No. 229 of 2025, which replaced the older decision many articles still cite.
If you need the regime basics first (who pays, the 9% rate, the general 0% band), start with our guide to UAE corporate tax explained; this page deals only with the free zone rules.
What You Need to Know First
A Qualifying Free Zone Person generally pays 0% UAE corporate tax on its qualifying income and 9% on the rest – but only while it meets every condition, every tax period.
- Conditions include adequate substance in the zone, audited financial statements and transfer pricing compliance.
- The current framework is Cabinet Decision No. 100 of 2023 plus Ministerial Decision No. 229 of 2025 (which repealed MD 265/2023) and MD 84/2025 on audited accounts.
- The de minimis test caps non-qualifying revenue at the lower of 5% of total revenue or AED 5 million.
- Failing any condition may cost QFZP status for the current and four subsequent tax periods.
- Compare your 0% and 9% scenarios with our corporate tax calculator.
QFZP at a glance
| Item | Detail |
|---|---|
| Rate on qualifying income | 0% |
| Rate on other taxable income | 9% (generally) |
| Key legal basis (2026) | Art. 18, Decree-Law 47/2022; Cabinet Decision 100/2023; Ministerial Decisions 229/2025 and 84/2025 |
| De minimis limit | Lower of 5% of total revenue or AED 5 million |
| Audited financial statements | Required (MD 84/2025) |
| Consequence of failing a condition | Loss of QFZP status for the current and four subsequent tax periods |
| Small Business Relief | Not available to QFZPs |
| Registration and filing | Still required in full |
The QFZP conditions checklist
A free zone person generally holds QFZP status only while all of the following are satisfied:
- Free zone person. A company or branch incorporated or registered in a UAE free zone.
- Adequate substance. Core income-generating activities are performed in the free zone, with adequate staff, assets and operating expenditure.
- Qualifying income. Income falls within the categories defined by Cabinet Decision No. 100 of 2023.
- No standard-rate election. The company has not elected to be taxed at the standard corporate tax rate instead.
- Transfer pricing compliance. Related-party dealings are at arm’s length and documented.
- De minimis satisfied. Non-qualifying revenue stays within the cap explained below.
- Audited financial statements. Prepared and maintained as required by Ministerial Decision No. 84 of 2025.
These tests apply in each tax period, and the detail behind every bullet is extensive – treat this as orientation, not a substitute for professional review.
Qualifying vs excluded activities (current law)
Ministerial Decision No. 229 of 2025, issued in August 2025 with retroactive effect from June 2023, now defines the activity lists. It replaced MD 265/2023, which is still widely quoted online – verify anything you read against the current decision.
| Qualifying activities (generally 0%-eligible) | Excluded activities (never qualifying) |
|---|---|
| Manufacturing and processing of goods or materials | Most transactions with natural persons (limited exceptions) |
| Trading of qualifying commodities – expanded by MD 229/2025 to cover industrial chemicals, by-products and environmental commodities such as carbon credits | Regulated banking activities |
| Holding of shares and other securities | Regulated insurance activities (other than reinsurance and certain permitted categories) |
| Ship ownership, management and operation; reinsurance; fund, wealth and investment management services | Regulated finance and leasing activities (beyond the permitted treasury and aircraft categories) |
| Treasury and financing services to related parties or for the person’s own account (clarified by MD 229/2025) | Ownership or exploitation of immovable property, except commercial property in a free zone transacted with free zone persons |
| Financing and leasing of aircraft; distribution of goods in or from a designated zone; logistics; headquarters services to related parties | Intellectual property income other than qualifying IP income |
What counts as qualifying income
Broadly, qualifying income under Cabinet Decision No. 100 of 2023 includes income from transactions with other free zone persons (unless it arises from excluded activities), income from qualifying activities with any counterparty, qualifying intellectual property income, and other income that stays within the de minimis limits. Selling to the mainland is permitted, but that income is generally non-qualifying unless it comes from a qualifying activity – which is exactly where the de minimis test starts to matter.
The de minimis rule: worked examples
Non-qualifying revenue may not exceed the lower of 5% of total revenue or AED 5 million.
Example 1. A free zone company has total revenue of AED 40 million, of which AED 1.5 million comes from non-qualifying mainland consulting. The cap is the lower of 5% (AED 2 million) and AED 5 million, so AED 2 million. The AED 1.5 million sits under the cap: the test is passed and the non-qualifying slice is tolerated.
Example 2. Total revenue is AED 200 million; 5% would be AED 10 million, so the cap is AED 5 million. Non-qualifying revenue of AED 6 million breaches the test – and the consequence hits all income, not just the excess.
What happens if you fail a condition
Failing the de minimis test, or any other QFZP condition, generally means losing QFZP status for the current tax period and the four subsequent periods. For five periods, taxable income is taxed at the standard rate above the threshold – not just the income that caused the failure. You can model the gap between the two outcomes with the corporate tax calculator; for many trading businesses it is large enough to justify restructuring contracts before year end. If the structure itself is the problem, it may be worth revisiting the mainland vs free zone vs offshore decision, or comparing zones with our free zone comparison tool.
QFZP, Small Business Relief and registration
Two interactions catch founders out. First, a QFZP cannot elect Small Business Relief – the regimes are mutually exclusive, so a small free zone company must decide which framework to pursue. Second, QFZP status removes no compliance duties: you must still register for corporate tax, file returns and keep records like any other taxable person.
Quick self-assessment checklist
- Are your core income-generating activities actually performed inside the free zone?
- Can you map every revenue stream to qualifying, excluded or de minimis?
- Is non-qualifying revenue safely below the lower of 5% of total revenue or AED 5 million?
- Are audited financial statements arranged for each tax period?
- Are related-party dealings priced at arm’s length and documented?
- Has anything changed this year – new clients, new activities, new property – that shifts a revenue category?
FAQ
What is a Qualifying Free Zone Person (QFZP)?
A QFZP is a free zone company or branch that meets all conditions set out in the UAE corporate tax law and its implementing decisions – including adequate substance, qualifying income, the de minimis test, transfer pricing compliance and audited financial statements. A QFZP generally pays 0% corporate tax on its qualifying income and 9% on other taxable income.
Do all free zone companies pay 0% corporate tax?
No. The 0% rate is not automatic for free zone companies. It applies only to Qualifying Free Zone Persons, and only to their qualifying income. A free zone company that fails any QFZP condition, or earns income outside the qualifying categories, generally pays the standard 9% rate on taxable income above the threshold like any mainland business.
What are the conditions to be a QFZP?
The main conditions are: being incorporated or registered in a UAE free zone, maintaining adequate substance there (staff, assets and expenditure for core activities), deriving qualifying income, not electing the standard rate, complying with transfer pricing rules, satisfying the de minimis test, and preparing audited financial statements as required by Ministerial Decision No. 84 of 2025. All conditions must generally be met in every tax period.
What is qualifying income for a free zone company?
Under Cabinet Decision No. 100 of 2023, qualifying income broadly includes income from transactions with other free zone persons (except from excluded activities), income from qualifying activities with any counterparty, qualifying intellectual property income, and other income within the de minimis limits. The activity lists themselves are defined by Ministerial Decision No. 229 of 2025, which replaced MD 265/2023.
What is the de minimis rule for QFZPs?
The de minimis rule tolerates a small amount of non-qualifying revenue: it must not exceed the lower of 5% of total revenue or AED 5 million in a tax period. For example, at AED 40 million total revenue the cap is AED 2 million; at AED 200 million revenue the cap is AED 5 million. Breaching the cap generally means losing QFZP status entirely.
What happens if a company fails a QFZP condition?
Failing any condition, including the de minimis test, generally means losing QFZP status for the current tax period and the four subsequent tax periods. During that time all taxable income above the threshold is taxed at the standard 9% rate, not just the income connected to the failure. The rules are fact-specific, so professional review is strongly recommended.
Can a QFZP sell to the UAE mainland?
Generally yes – mainland sales are not prohibited and do not by themselves destroy QFZP status. However, income from mainland customers is usually non-qualifying unless it arises from a qualifying activity, so it counts toward the de minimis cap. A free zone company with growing mainland revenue should monitor that cap closely each period.
Does a QFZP need audited financial statements?
Yes. Preparing and maintaining audited financial statements is a QFZP condition, currently governed by Ministerial Decision No. 84 of 2025. A free zone company that skips the audit may fail the conditions and lose access to the 0% rate for the current and four subsequent tax periods. Confirm the exact requirements for your situation with the FTA or a licensed auditor.
Can a QFZP claim Small Business Relief?
No. Qualifying Free Zone Persons are excluded from Small Business Relief – the two regimes are mutually exclusive. A small free zone company under AED 3 million revenue may need to decide which framework fits better: pursuing QFZP status with its 0% on qualifying income, or forgoing it and electing Small Business Relief while that relief remains available.
Does a QFZP still have to register and file corporate tax returns?
Yes. QFZP status changes the rate applied to qualifying income, not the compliance obligations. Every free zone person must register for corporate tax on EmaraTax, file returns within 9 months of each tax period end, keep records and, for QFZPs, maintain audited financial statements and transfer pricing documentation.
Next Steps
Map your revenue streams against the activity table, run the de minimis numbers, and get the position professionally reviewed before you assume 0%.
Model your 0% vs 9% scenarios with the corporate tax calculator, then bring the output to your consultant review.
Sources
UAE Business Setup Specialist
Krystyna Sokolovska is a UAE business setup specialist who helps founders, independent professionals, and growing companies navigate business launch decisions in the Emirates with more clarity and less risk. Her work focuses on the practical side of entry into the UAE market — choosing the right setup path, understanding licensing options, preparing for banking, planning visa steps, and avoiding common mistakes that slow companies down.
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