Qualifying Free Zone Person: How to Keep the 0% UAE Tax Rate
A Qualifying Free Zone Person (QFZP) can keep a 0% UAE corporate tax rate on qualifying income, while non-qualifying income is taxed at 9%. The 0% rate is not automatic with a free-zone licence — it depends on meeting a defined set of conditions.
The five conditions
To be a QFZP, a free-zone entity must: maintain adequate substance in the UAE; derive qualifying income; not elect to be taxed at the standard rate; comply with transfer-pricing rules and documentation; and prepare audited IFRS financial statements. Miss any one, and the entity is taxed at 9% on all its income for that period and the following four.
The de minimis limit
A QFZP can earn some non-qualifying income without losing status, provided it stays within the de minimis threshold — the lower of 5% of total revenue or AED 5 million in a tax period. Exceed it, and the 0% rate is lost. Qualifying income broadly covers transactions with other free-zone persons and defined qualifying activities; excluded activities and most mainland-sourced income are not qualifying.
Key figures
- 0% on qualifying income; 9% on non-qualifying income (UAE Federal Tax Authority)
- De minimis limit: lower of 5% of total revenue or AED 5 million
- Audited IFRS financial statements and transfer-pricing compliance are mandatory conditions
Frequently asked questions
Can a UAE free-zone company still pay 0% corporate tax?
Yes. A Qualifying Free Zone Person can retain 0% on qualifying income if it maintains adequate substance, meets transfer-pricing requirements, prepares audited IFRS financial statements, and keeps non-qualifying revenue within the de minimis limit — the lower of 5% of revenue or AED 5 million. Non-qualifying income is taxed at 9%.
What happens if I exceed the de minimis limit?
Exceeding the de minimis threshold causes the entity to lose Qualifying Free Zone Person status and be taxed at the standard 9% rate for that tax period and the following four tax periods.
By Vijay Dhawan, Managing Partner, LexVerge LLP. Last updated 2 July 2026. This article is general information, not tax advice; confirm the current position for your facts before acting.
