Qualifying Free Zone Person Assessment: UAE Corporate tax Guide

A Qualifying Free Zone Person (QFZP) can benefit from a 0% UAE Corporate tax rate on Qualifying Income only when every statutory condition is met for the relevant Tax Period. Free Zone status by itself does not make all income tax-free. The assessment must follow the Corporate tax Law, the current Cabinet and Ministerial Decisions, and Federal Tax Authority guidance.

What must be tested in a QFZP assessment?

A reliable assessment follows the legal conditions in sequence and then classifies each material revenue stream. The business should document the conclusion before filing its Corporate tax Return.

• The entity is a juridical person incorporated, established or otherwise registered in a UAE Free Zone, including an eligible branch.
• It maintains adequate substance in the UAE, including suitable core income-generating activities, assets, qualified employees and operating expenditure.
• It derives Qualifying Income and has not elected to be subject to the ordinary Corporate tax rules.
• It complies with the arm’s-length principle and applicable transfer pricing documentation requirements.
• It prepares audited financial statements in accordance with the applicable UAE Corporate tax requirements.
• Its non-qualifying Revenue remains within the de minimis limit.

Qualifying Income is determined by the transaction and activity

The counterparty, activity, location and beneficial-recipient conditions all matter. Income from another Free Zone Person may qualify when that person is the beneficial recipient and the income is not attributable to an Excluded Activity. Income from a Non-Free Zone Person generally requires the underlying activity to be a listed Qualifying Activity. A foreign customer or a Free Zone address does not, by itself, make income qualifying.

Qualifying Activities under Ministerial Decision No. 229 of 2025

The current list includes defined activities such as the following. Each definition and condition must be checked rather than relying only on a trade-licence description:

• manufacturing or processing goods or materials;
• trading Qualifying Commodities where the quoted-price and other conditions are met;
• holding shares and other securities for investment purposes;
• ownership, management and operation of ships;
• reinsurance, regulated fund management, and regulated wealth and investment management services;
• headquarters services and treasury or financing services to Related Parties, including the permitted own-account treatment;
• financing and leasing aircraft, including qualifying components;
• distribution of goods or materials in or from a Designated Zone where the detailed conditions are satisfied;
• logistics services; and
• activities ancillary to a Qualifying Activity.

Excluded Activities require separate attention

Excluded Activities include most transactions with natural persons, banking, specified insurance activities, specified finance and leasing activities, and ownership or exploitation of immovable property other than the permitted Free Zone commercial-property case. The law contains exceptions, so a label such as “finance”, “insurance” or “property” is not enough to determine the outcome.

The de minimis test

Non-qualifying Revenue must not exceed the lower of AED 5 million or 5% of total Revenue for the Tax Period. The calculation has specific exclusions and should be reconciled to the audited financial statements. Businesses should monitor the threshold during the year; waiting until the return is prepared can make remediation difficult.

Permanent establishments, immovable property and intellectual property

Income attributable to a Domestic Permanent Establishment or Foreign Permanent Establishment, income from immovable property, and income from intellectual property can follow special rules. Qualifying Intellectual Property income uses a nexus-based calculation linked to qualifying research and development expenditure. These items should be modelled separately from ordinary qualifying-activity income.

What happens if a condition is not met?

A Free Zone Person that fails a QFZP condition generally ceases to be a QFZP from the beginning of that Tax Period and for the next four Tax Periods. Its income is then determined under the ordinary Corporate tax rules. This consequence is broader than simply applying 9% to one non-qualifying transaction.

Practical QFZP assessment process

1. Map every entity, branch, licence, place of business and Permanent Establishment.
2. Classify Revenue by counterparty, activity, location and contract.
3. Test beneficial-recipient and activity-specific conditions.
4. Calculate the de minimis threshold and reconcile it to the accounts.
5. Review substance, transfer pricing, audited financial statements and elections.
6. Document conclusions, uncertainties and filing positions with official-source support.

How SAIF Chartered Accountants can help

Our Corporate tax and transfer pricing teams can perform a QFZP eligibility assessment, classify revenue streams, test de minimis exposure, review substance and documentation, and align the conclusion with the audited financial statements and Corporate tax Return.