The UAE Corporate Tax regime introduced a special category called the Qualifying Free Zone Person (QFZP), offering eligible Free Zone entities a 0% corporate tax rate on qualifying income. This incentive is designed to support the growth of Free Zones and attract regional and international businesses.
If your company operates in a UAE Free Zone, understanding QFZP rules is crucial to ensure compliance and to maximize tax benefits. Below is a clear and practical breakdown.
What Is a Qualifying Free Zone Person?
A Qualifying Free Zone Person is a Free Zone entity that meets certain conditions defined under the UAE Corporate Tax Law. If it qualifies, it can benefit from the 0% corporate tax rate on qualifying income and 9% tax only on non-qualifying income.
Key Conditions to Become a QFZP
To be treated as a Qualifying Free Zone Person, a business must meet all of the following conditions:
1. Maintain Adequate Substance in the Free Zone
The company must conduct core income-generating activities within the Free Zone.
This includes:
- Having sufficient qualified employees
- Relevant operating expenditure
- Physical office premises (or flexi-desk depending on activity)
2. Earn Qualifying Income
Only certain income types qualify for the 0% tax rate, such as:
- Transactions with other Free Zone Persons
- International business transactions
- Specific regulated activities (e.g., manufacturing, logistics, HQ services)
3. Not Elect to be Subject to Standard Corporate Tax
The entity must not choose to pay the standard 9% tax.
4. Comply With Transfer Pricing Rules
The business must:
- Prepare transfer pricing documentation
- Maintain required records
- File a disclosure form if applicable
5. Maintain Audited Financial Statements
All QFZPs must maintain audited financial statements.
Qualifying Income for QFZP
Under the Cabinet and Ministerial Decisions, the following income types may qualify for the 0% rate:
✔ Transactions with Free Zone Persons
For example:
- Sale of goods within the Free Zone
- Services provided to another FZ entity
✔ International Operations
Income from transactions with customers outside the UAE.
✔ Specific Regulated Activities
Including:
- Manufacturing
- Processing
- Distribution of goods from Designated Zones
- Logistics & warehousing
- Fund management
- HQ services
- Holding company activities
- Ship/aircraft leasing
✔ Passive Income
Such as:
- Interest
- Royalties
- Dividend income from subsidiaries
However, activities involving mainland UAE customers generally attract 9% corporate tax, unless they fall under the “qualifying activities” exemptions.
Non-Qualifying Income (Subject to 9% CT)
Not all revenue of a Free Zone company receives the 0% rate. Some examples include:
- Income from mainland UAE (unless qualifying activity & conditions met)
- Income from immovable property located in mainland
- Income from non-qualifying activities that exceed the de minimis threshold
De Minimis Rule
A QFZP can still retain its status if non-qualifying income does not exceed:
5% of total revenue or AED 5 million (whichever is lower).
Exceeding this threshold may cause the company to lose QFZP status.
Benefits of Being a QFZP
Becoming a Qualifying Free Zone Person offers significant advantages:
- 0% Corporate Tax on qualifying income
- Access to global markets with tax-efficient structure
- Enhanced business attractiveness for investors and partners
- Operational flexibility within Free Zones
- Reduced tax burden, increasing profitability
How to Ensure Your Company Qualifies
To maintain QFZP status, businesses should:
- Review their activities to ensure they fall within qualifying categories
- Confirm adequate substance in the Free Zone
- Maintain accurate bookkeeping and audited accounts
- Monitor the de minimis threshold
- Properly classify income into qualifying and non-qualifying
- Ensure full transfer pricing compliance
Conclusion
The Qualifying Free Zone Person (QFZP) regime offers major tax advantages under the UAE Corporate Tax framework. However, eligibility requires strict compliance with substance rules, qualifying activity definitions, and documentation requirements.
If structured and managed correctly, your business can legally access the 0% corporate tax benefits, strengthening long-term growth within the UAE.
How Finexus Advisory Helps
Navigating corporate tax regulations can be complex. At Finexus Advisory, we provide comprehensive corporate tax consulting and compliance services tailored to your business needs.
Our services include:
- Corporate Tax registration
- Corporate Tax filing
- Corporate Tax De-registration
- Tax planning and impact assessment
- Reviewing free zone entity qualifications
- Preparation of financial statements and audit coordination
- Ongoing compliance and advisory support
We ensure your business remains compliant, optimized, and ready for the future of taxation in the UAE.
Your Business Needs Corporate Tax Compliance – Your Solution is Finexus.
Contact Finexus Advisory today and stay compliant with UAE laws while improving your financial performance.
