Introduction
One of the key advantages of operating in a UAE free zone has always been the favourable tax environment. Under the UAE Corporate Tax law, free zone companies can still benefit from a 0% corporate tax rate — but only if they meet specific conditions to qualify as a Qualifying Free Zone Person (QFZP).
This guide explains what those conditions are, how to maintain your qualifying status, and what happens if you do not meet the requirements.
What Is a Qualifying Free Zone Person?
A Qualifying Free Zone Person is a free zone company that meets all the conditions set out in the UAE Corporate Tax law to benefit from a 0% rate on Qualifying Income.
Conditions to Qualify
To be treated as a QFZP, your company must:
- Maintain adequate substance in the UAE (staff, assets, operating expenditure)
- Derive Qualifying Income as defined under the law
- Not elect to be subject to the standard 9% rate
- Comply with transfer pricing rules and maintain proper documentation
- Prepare audited financial statements
What Counts as Qualifying Income?
Qualifying Income generally includes:
- Income from transactions with other free zone persons
- Income from transactions with parties outside the UAE
- Certain intra-group transactions
- Any other income specified by the Minister of Finance
What Does NOT Qualify?
Income from the following sources is not qualifying and is taxed at 9%:
- Revenue from transactions with mainland UAE businesses (in most cases)
- Income derived from excluded activities (e.g., regulated financial services unless specifically included)
- Revenue that does not meet the substance requirements
The De Minimis Rule
If your non-qualifying revenue exceeds the lower of:
- AED 5 million, or
- 5% of total revenue
…you lose your QFZP status entirely for that tax period, and all income is taxed at 9%.
Practical Implications
You Must Still Register
Even if you qualify for 0%, you must register with the FTA and file an annual corporate tax return.
Audited Financial Statements Are Required
QFZPs must prepare audited financial statements, which adds a compliance cost but is mandatory.
Substance Must Be Real
The FTA will review whether your operations, employees, and decision-making genuinely occur in the UAE. Paper-only setups will not qualify.
How Star One Helps
We assess your free zone company's activities, revenue sources, and substance to determine whether you qualify for the 0% rate. We also handle annual tax return filing and ensure your documentation meets FTA standards.
For expert guidance on Corporate Tax for free zone companies, contact Star One.
Frequently Asked Questions
Do all free zone companies get 0% corporate tax?
No. Only companies that meet the QFZP conditions qualify for 0% on qualifying income. Non-qualifying income is taxed at 9%.
Do I still need to file a tax return?
Yes. All free zone companies must register and file annual corporate tax returns, regardless of their tax rate.
What if I trade with mainland companies?
Revenue from mainland transactions is generally treated as non-qualifying income and taxed at 9%.
Can I switch between 0% and 9% rates?
If you elect to be taxed at 9%, this election is irrevocable. Otherwise, your rate depends on meeting QFZP conditions each year.
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Common questions
Do all free zone companies get 0% corporate tax?
What is the de minimis rule for QFZP?
Do free zone companies need audited financials?
Star One's advisory team brings together over 12 years of UAE business formation experience, helping entrepreneurs from the UK, US, South Africa and beyond establish successful companies in Dubai.
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