Qualifying Free Zone Person: what it means in UAE tax.
The meaning of qualifying free zone person under UAE Corporate Tax law: how it works, a worked example in AED, common mistakes and the legal references.
A free zone company that meets every condition in Article 18 of the UAE Corporate Tax Law and pays 0% on its Qualifying Income.
What qualifying free zone person means
Also called: QFZP.
A Qualifying Free Zone Person, often shortened to QFZP, is a company or branch registered in a UAE free zone that meets all of the conditions set by Article 18 of the Corporate Tax Law and the decisions issued under it. Being registered in a free zone is not enough on its own. The status has to be earned, and kept, every tax period.
The reward is a split rate. Qualifying Income is taxed at 0%, while any other taxable income is taxed at 9% with no AED 375,000 zero rate band. A company that does not qualify is taxed like a mainland business.
For an SME in a free zone, the question to answer each year is simple: do we still meet every condition? The conditions cover real substance in the free zone, the type of income earned, the de minimis limit on other revenue, transfer pricing compliance, audited financial statements, and not having elected into the standard regime. Failing any one of them at any time in a tax period removes the status from the start of that period and for the next four periods.
How it works
- The company must be a Free Zone Person: a juridical person incorporated, established or registered in a free zone, including a branch of a non-resident registered there.
- It must maintain adequate substance: core income-generating activities in a free zone or designated zone, with adequate assets, qualified full-time staff and operating spend.
- It must earn Qualifying Income, keep non-qualifying revenue within the de minimis limit, comply with the arm's length rules and transfer pricing documentation, and prepare audited financial statements.
- It must not have elected to be taxed at the standard rates under Article 19.
- Qualifying Income is taxed at 0%. Other taxable income, such as income of a mainland branch, is taxed at 9% from the first dirham.
- Losing the status at any point in a tax period means losing it from the start of that period and for the following four tax periods.
Worked example
A logistics company in a Dubai free zone earns taxable income of AED 1,200,000 in a year, all of it Qualifying Income. The table compares its position as a QFZP with its position if it had lost the status, for example by missing the audited financial statements condition.
| Taxable income for the year | AED 1,200,000 |
| Corporate Tax as a QFZP (0% on Qualifying Income) | AED 0 |
| If status lost: first 375,000 at 0% | AED 0 |
| If status lost: remaining 825,000 at 9% | AED 74,250 |
| Corporate Tax payable if status lost | AED 74,250 |
Losing QFZP status turns a nil bill into AED 74,250 for this year, and the standard rates then apply for four more tax periods.
Common mistakes
- Assuming that a free zone licence alone gives a 0% rate. The conditions must all be met, and the status is tested every tax period.
- Running staff, decisions and operations from a mainland office while relying on the free zone address. Substance has to be where the law says it must be.
- Forgetting the audited financial statements and transfer pricing conditions, which can remove the status even when all income would otherwise qualify.
The law
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended, Article 18 (Qualifying Free Zone Person)
- Federal Decree-Law No. 47 of 2022, as amended, Article 3, Clause 2 (0% on Qualifying Income, 9% on other Taxable Income) and Article 19 (election to be subject to Corporate Tax)
- Cabinet Decision No. 100 of 2023 on Determining Qualifying Income for the Qualifying Free Zone Person, Article 8 (adequate substance and outsourcing)
- Ministerial Decision No. 229 of 2025 Regarding Qualifying Activities and Excluded Activities, Article 5 (other conditions and the four tax period consequence)
Frequently asked questions
Does a Qualifying Free Zone Person get the AED 375,000 zero rate band?
No. Article 3 gives a Qualifying Free Zone Person 0% on Qualifying Income and 9% on its other Taxable Income. The AED 375,000 band belongs to the standard rates, which apply only if the company is not a Qualifying Free Zone Person or has elected into them.
If we lose the status in November, which months are affected?
The whole tax period. The status is lost from the beginning of the tax period in which a condition fails, and Ministerial Decision No. 229 of 2025 keeps it lost for the following four tax periods as well.
Related terms
Qualifying Income · De minimis requirements · Small Business Relief · Corporate Tax group · Permanent establishment. See every term in the UAE tax glossary.
For the full picture, read our guide: Qualifying Free Zone Persons: How the 0% Corporate Tax Rate Really Works.
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