Qualifying Free Zone Person (QFZP): UAE 0 per cent Tax & De Minimis

Qualifying Income: Transactions with Other Free Zone Persons

Income derived from transactions with another Free Zone Person is Qualifying Income where that person is the Beneficial Recipient and the income is not derived from an Excluded Activity under Cabinet Decision No. 100 of 2023, Article 3.

• Category: Core Qualifying Income Category

Pros

• Applies to a wide range of B2B commercial activity within the UAE's free zone ecosystem
• Does not require the counterparty to be outside the UAE, making it accessible to regionally focused businesses
• Covers both goods and services revenue streams where the Free Zone Person counterparty is the Beneficial Recipient, subject to the exclusions in Cabinet Decision No. 100 of 2023, Article 3

Cons

• Counterparty based classification does not apply where the income is derived from an Excluded Activity under Cabinet Decision No. 100 of 2023, Article 3(1)(a)
• A mainland subsidiary is a Non-Free Zone Person, so its transactions do not qualify through the Free Zone Person counterparty route. Income can still qualify through the separate Qualifying Activity route where the activity is listed in Ministerial Decision No. 229 of 2025 and is not excluded
• Revenue from this category must still be properly segregated in the entity's accounts for the de minimis calculation

Pricing: 0 per cent on Qualifying Income in this category under the current consolidated Corporate Tax Law, Article 3(2)

Best For: Free zone holding companies, trading entities, and service businesses whose primary commercial relationships are with other UAE-licensed free zone entities

Website: https://mof.gov.ae/wp-content/uploads/2023/11/Cabinet-Decision-No.-100-of-2023-on-Determining-Qualifying-Income-for-the-Qualifying-Free-Zone-Person.pdf

Qualifying Income: Prescribed Qualifying Activities with Non-Free Zone Persons

Income generated from conducting Qualifying Activities listed in Ministerial Decision No. 229 of 2025 is treated as Qualifying Income under Cabinet Decision No. 100 of 2023, Article 3(1)(b), when the counterparty is a Non-Free Zone Person and the activity is not an Excluded Activity. Ministerial Decision No. 229 of 2025 repealed its predecessor and applies from 1 June 2023.

• Category: Core Qualifying Income Category

Pros

• The listed activities can produce Qualifying Income in transactions with Non-Free Zone Persons
• The current list includes manufacturing, processing, trading of Qualifying Commodities, specified holding, ownership, management and operation of Ships, reinsurance, fund management, wealth and investment management, headquarters, treasury, aircraft financing, distribution and logistics activities
• Activities ancillary to a listed Qualifying Activity can also qualify where they meet the statutory test

Cons

• A transaction with a Non-Free Zone Person qualifies only where it concerns a listed Qualifying Activity that is not an Excluded Activity
• Trading of Qualifying Commodities covers physical trading, associated hedging derivatives and associated structured commodity financing. It is not a Qualifying Activity where Revenue from distribution, warehousing, logistics or inventory management functions is 51 per cent or more of the QFZP's Revenue for the relevant Tax Period
• Designated Zone distribution must be conducted in or from that zone. Goods entering the State must be imported through it and supplied either to a customer that resells, processes or alters them for sale or resale, or to a Public Benefit Entity
• Income from an Excluded Activity is non-qualifying even if it relates to a category that might otherwise qualify, subject to the express exceptions in the Decision

Pricing: 0 per cent on Qualifying Income from a listed activity while the entity remains a QFZP under the current consolidated Corporate Tax Law, Article 3(2), and Ministerial Decision No. 229 of 2025, Article 2

Best For: Manufacturing, logistics, fund management, and financial services entities whose revenue is driven by a defined operational activity rather than purely by counterparty classification

Website: https://tax.gov.ae/Datafolder/Files/Pdf/2025/MD-No-229.pdf

Qualifying Intellectual Property Income

Income derived from the ownership or exploitation of Qualifying Intellectual Property can attract the 0 per cent rate to the extent calculated under the nexus formula in Ministerial Decision No. 229 of 2025, Article 4.

• Category: Specialist Qualifying Income Category

Pros

• Provides a statutory basis for IP holding and royalty structures in UAE free zones to access the 0 per cent rate
• Nexus methodology aligns with the OECD's modified nexus approach, offering a degree of international policy consistency
• Covers both direct exploitation (licensing) and disposal of qualifying IP assets
• Particularly relevant for technology, pharmaceutical, and software businesses consolidating IP ownership in the UAE

Cons

• Nexus calculation requires detailed tracking of qualifying R&D expenditure over time; documentation burden is substantially higher than for other Qualifying Income categories
• For a QFZP, IP income beyond the nexus formula amount, or from IP that is not Qualifying Intellectual Property, is Taxable Income at 9 per cent under Cabinet Decision No. 100 of 2023, Article 7(2)
• Marketing-related intangibles (trade names, brand assets) are explicitly excluded from the definition of Qualifying IP
• Entities acquiring IP rather than developing it face a materially lower qualifying expenditure ratio under the nexus formula, reducing the income eligible for the 0 per cent rate

Pricing: 0 per cent on the Qualifying Income calculated under the nexus formula. Income from other intellectual property and any excess over that amount is Taxable Income at 9 per cent under Cabinet Decision No. 100 of 2023, Article 7

Best For: Technology companies, pharmaceutical groups, and software developers that have incurred genuine R&D expenditure within a UAE free zone and hold patents or registered software copyrights

Website: https://tax.gov.ae/Datafolder/Files/Pdf/2025/MD-No-229.pdf

Other Income Within the De Minimis Threshold

A QFZP may derive a limited amount of Revenue from Excluded Activities, from non-qualifying activities with a Non-Free Zone Person, or from a transaction in which a Free Zone Person is not the Beneficial Recipient. The de minimis requirements remain satisfied where that non-qualifying Revenue does not exceed the lower of 5 per cent of total Revenue or AED 5 million under Ministerial Decision No. 229 of 2025, Article 3.

• Category: Income Treated as Qualifying While De Minimis Is Satisfied

Pros

• Cabinet Decision No. 100 of 2023, Article 3(1)(d), includes any other income within Qualifying Income while the QFZP satisfies the de minimis requirements
• The threshold is met at the limit because the statutory test is that non-qualifying Revenue does not exceed the lower amount
• Incidental ordinary Revenue within the threshold therefore receives the 0 per cent rate rather than being taxed in a separate 9 per cent category

Cons

• The calculation includes specific forms of non-qualifying Revenue and excludes the categories listed in Cabinet Decision No. 100 of 2023, Article 4(3)
• Income attributable to a Domestic or Foreign Permanent Establishment follows the separate 9 per cent rule in Cabinet Decision No. 100 of 2023, Article 5, unless an exemption applies. A Foreign Permanent Establishment may qualify for an exemption election under Article 24 of the current consolidated Corporate Tax Law
• Article 6 separately taxes income from Commercial Property in a Free Zone transacted with a Non-Free Zone Person and income from other immovable property transacted with any Person. Commercial Property in a Free Zone can instead qualify under Article 3 where the transaction is with a Free Zone Person that is the Beneficial Recipient
• Non-qualifying intellectual property follows the separate 9 per cent rule and does not become Qualifying Income through the de minimis test
• Exceeding the lower of 5 per cent of total Revenue or AED 5 million causes the entity to cease to be a QFZP from the beginning of that Tax Period and for the next four Tax Periods under Ministerial Decision No. 229 of 2025, Article 5(2)

Pricing: 0 per cent on income included within Qualifying Income while de minimis is satisfied. If the threshold is exceeded, QFZP status is lost for the current and next four Tax Periods. A non-exempt entity then moves to the ordinary rates under the current consolidated Corporate Tax Law, Article 3(1)

Best For: Predominantly qualifying businesses that need to measure incidental non-qualifying Revenue against the statutory limit

Website: https://mof.gov.ae/wp-content/uploads/2023/11/Cabinet-Decision-No.-100-of-2023-on-Determining-Qualifying-Income-for-the-Qualifying-Free-Zone-Person.pdf

Excluded Activities: Non-Qualifying Income Regardless of Counterparty

Ministerial Decision No. 229 of 2025, Article 2(2), defines Excluded Activities. Revenue from those activities enters the de minimis numerator unless it falls within a category excluded from the calculation by Cabinet Decision No. 100 of 2023, Article 4(3).

• Category: Income Requiring De Minimis Classification

Pros

• The current Ministerial Decision specifies the Excluded Activities and the exceptions to them
• Transactions with natural persons are excluded except for the listed ownership, management and operation of Ships, fund management, wealth and investment management, and aircraft financing activities
• The Decision defines when an ancillary activity follows a qualifying or excluded main activity

Cons

• Banking, specified insurance and specified finance and leasing activities are excluded under the detailed terms of the Decision. Immovable property is excluded except for Commercial Property located in a Free Zone where the transaction is with a Free Zone Person; Article 3 also requires that counterparty to be the Beneficial Recipient
• Income from non-qualifying intellectual property is Taxable Income at 9 per cent and its Revenue is excluded from both sides of the de minimis calculation under Cabinet Decision No. 100 of 2023, Articles 4(3)(c) and 7(2)
• If included Excluded Activity Revenue pushes non-qualifying Revenue over the de minimis limit, the entity loses QFZP status from the beginning of the current Tax Period and for the next four Tax Periods

Pricing: ordinary Excluded Activity income is included within Qualifying Income at 0 per cent while the de minimis requirements are satisfied under Cabinet Decision No. 100 of 2023, Article 3(1)(d). This does not sweep into 0 per cent the separately treated income under Articles 5, 6 and 7. Commercial Property in a Free Zone can qualify under Article 3 where the transaction is with a Free Zone Person that is the Beneficial Recipient. If the threshold is exceeded, QFZP status is lost under Ministerial Decision No. 229 of 2025, Article 5(2), and a non-exempt entity moves to the ordinary Corporate Tax rates

Best For: Understanding as a compliance risk category rather than a planning tool; relevant for any QFZP conducting activity assessments prior to commencing new revenue streams

Website: https://tax.gov.ae/Datafolder/Files/Pdf/2025/MD-No-229.pdf

Free Zone Person Without QFZP Status

A Free Zone Person that does not meet the QFZP conditions, including one that exceeds the de minimis limit, is taxed under the ordinary rules in the current consolidated Corporate Tax Law, Article 3(1), unless it qualifies as an Exempt Person under Article 4. A de minimis breach removes QFZP status from the beginning of the relevant Tax Period and for the next four Tax Periods under Ministerial Decision No. 229 of 2025, Article 5(2).

• Category: Baseline Tax Position

Pros

• The entity no longer needs to classify income for access to the QFZP 0 per cent rate
• The ordinary Corporate Tax framework applies to its Taxable Income where the entity is not an Exempt Person

Cons

• The 0 per cent QFZP rate on Qualifying Income is unavailable
• Loss of QFZP status through a de minimis breach applies for the current and next four Tax Periods
• For profitable entities, the difference between the QFZP rate and the ordinary Corporate Tax rate can be material

Pricing: ordinary Corporate Tax rates under the current consolidated Corporate Tax Law, Article 3(1), unless the entity qualifies as an Exempt Person under Article 4

Best For: Non-exempt free zone entities that cannot satisfy QFZP conditions, that have been involuntarily disqualified, or whose commercial model relies primarily on mainland UAE or consumer-facing transactions

Website: https://uaelegislation.gov.ae/en/legislations/1582

Free Zone Qualifying Income: A Structured Compliance Assessment

The 0 per cent corporate tax rate is conditional, not an automatic consequence of free zone incorporation. The current consolidated Corporate Tax Law, Article 18, sets the core QFZP conditions. Ministerial Decision No. 229 of 2025, Article 5, adds the de minimis and audited financial statement conditions and prescribes the five Tax Period consequence of a failure. The framework below separates income treatment while de minimis is satisfied from status loss when it is exceeded. It is informational and does not replace UAE tax advice.

Step 1: Confirm Every QFZP Condition

The entity must satisfy the conditions in the current consolidated Corporate Tax Law, Article 18, and the additional conditions in Ministerial Decision No. 229 of 2025, Article 5. These include adequate substance, Qualifying Income, transfer pricing compliance, no election into the ordinary regime, audited financial statements and compliance with de minimis. Failure at any point in a Tax Period removes QFZP status from the beginning of that period under the current Decision.

Step 2: Map Each Revenue Stream to Its Income Classification

Classify each revenue stream under Cabinet Decision No. 100 of 2023. Article 3 covers income from Free Zone Persons, Qualifying Activities with Non-Free Zone Persons, Qualifying Intellectual Property and any other income admitted through de minimis. Article 5 separately taxes income attributable to a Domestic or Foreign Permanent Establishment at 9 per cent unless an exemption applies; a Foreign Permanent Establishment may qualify for the Article 24 election in the current consolidated Corporate Tax Law. Article 6 separately taxes Commercial Property in a Free Zone transacted with a Non-Free Zone Person and other immovable property transacted with any Person. Commercial Property in a Free Zone can remain within Article 3 where the transaction is with a Free Zone Person that is the Beneficial Recipient. Article 7 separately treats non-qualifying intellectual property.

Step 3: Test Non-Qualifying Income Against the De Minimis Threshold

Apply the numerator and denominator rules in Cabinet Decision No. 100 of 2023, Article 4. Under Ministerial Decision No. 229 of 2025, Article 3, de minimis is satisfied where non-qualifying Revenue does not exceed the lower of 5 per cent of total Revenue or AED 5 million. While that test is satisfied, Article 3(1)(d) of the Cabinet Decision includes any other income within Qualifying Income at 0 per cent. If non-qualifying Revenue exceeds the limit, Article 5(2) of the Ministerial Decision removes QFZP status from the start of the current Tax Period and for the next four Tax Periods. This is a status test, not a 9 per cent tax on a slice of ordinary non-qualifying Revenue.

Step 4: Identify and Ring-Fence Excluded Activity Revenue

Identify Excluded Activities under Ministerial Decision No. 229 of 2025, Article 2(2), including the express exceptions. Then determine whether the resulting Revenue enters the de minimis calculation or is one of the categories excluded by Cabinet Decision No. 100 of 2023, Article 4(3). Included Excluded Activity Revenue is treated as Qualifying Income while de minimis is satisfied. It contributes to loss of QFZP status if the statutory limit is exceeded.

Step 5: Apply the Dual-Rate Structure to Taxable Income

For a QFZP that satisfies de minimis, the 0 per cent rate covers the Qualifying Income categories in Cabinet Decision No. 100 of 2023, including the Article 3(1)(d) category. The 9 per cent QFZP rate remains relevant to Taxable Income under Articles 5, 6 and 7(2), subject to applicable exemptions. A Foreign Permanent Establishment may qualify for the Article 24 exemption election. Commercial Property in a Free Zone can remain Qualifying Income where the transaction is with a Free Zone Person that is the Beneficial Recipient; the other immovable property categories in Article 6 are taxable at 9 per cent. If de minimis is exceeded, the entity is no longer a QFZP for the prescribed five Tax Periods. A non-exempt entity then moves to the ordinary rates in the current consolidated Corporate Tax Law, Article 3(1).

Step 6: Structure Transactions to Preserve Qualifying Income Classification

Counterparty status alone is not enough. Transactions with a Free Zone Person require that person to be the Beneficial Recipient and must not concern an Excluded Activity. Transactions with a Non-Free Zone Person require a Qualifying Activity that is not excluded. Groups should document activity, counterparty, Beneficial Recipient and Revenue classification before applying de minimis. Growth Capital's analysis at /insights/uae-free-zone-vs-mainland-company provides wider structural context. A UAE qualified tax adviser should confirm the treatment before filing or changing transaction flows.