Qualifying Income: what it means in UAE tax.
The meaning of qualifying income under UAE Corporate Tax law: how it works, a worked example in AED, common mistakes and the legal references.
Income of a Qualifying Free Zone Person that is taxed at 0% under UAE Corporate Tax, as defined by Cabinet Decision No. 100 of 2023.
What qualifying income means
Qualifying Income is the part of a Qualifying Free Zone Person's income that is taxed at 0%. The Corporate Tax Law defines it as income of a Qualifying Free Zone Person that is subject to the 0% rate, and leaves the detail to Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025.
In practice the answer turns on two questions: who is the customer, and what is the activity? Income from other free zone persons who actually use the goods or services usually qualifies, unless it comes from an Excluded Activity. Income from mainland customers qualifies only when it comes from a listed Qualifying Activity, such as manufacturing, processing, logistics or distribution in or from a designated zone.
Some income never qualifies. Income of a mainland or foreign branch, and most income from immovable property, is taxed at 9%. For a free zone SME, mapping every revenue line against these rules is the core of Corporate Tax planning, because a line that does not qualify is taxed from the first dirham.
How it works
- Income from transactions with a Free Zone Person qualifies if that person is the Beneficial Recipient, meaning it uses the goods or services itself, and the activity is not an Excluded Activity.
- Income from Non-Free Zone Persons qualifies only for Qualifying Activities that are not Excluded Activities.
- Qualifying Activities are listed in Ministerial Decision No. 229 of 2025 and include manufacturing, processing, trading of qualifying commodities, holding shares for investment, logistics, headquarter services and treasury services to related parties.
- Excluded Activities include most transactions with natural persons, banking, insurance, regulated finance and leasing, and most immovable property income.
- Income attributable to a domestic or foreign permanent establishment, and income from residential property or from commercial property let to mainland tenants, is taxed at 9%.
- Any other income can still count as Qualifying Income if the de minimis requirements are met.
Worked example
A packaging manufacturer in a free zone sells to free zone companies that use the packaging in their own products, and sells its own manufactured goods to mainland companies. It also lets a residential apartment it owns in the free zone.
| Sales to free zone companies (Beneficial Recipients) | AED 2,500,000 |
| Sales of own manufactured goods to mainland companies | AED 1,800,000 |
| Revenue giving Qualifying Income | AED 4,300,000 |
| Net rental income from the residential apartment | AED 100,000 |
| Corporate Tax on the rental income at 9% | AED 9,000 |
Manufacturing is a Qualifying Activity, so mainland sales can qualify, but residential property income is taxed at 9% from the first dirham.
Common mistakes
- Treating all income as qualifying because the company is in a free zone. Each revenue stream must be tested against the customer and activity rules.
- Selling to mainland consumers and assuming it qualifies. Transactions with natural persons are an Excluded Activity for most activities.
- Counting sales to a free zone reseller as qualifying without checking who the Beneficial Recipient is.
The law
- Federal Decree-Law No. 47 of 2022, as amended, Article 1 (definition of Qualifying Income) and Article 3, Clause 2
- Cabinet Decision No. 100 of 2023, Articles 3, 5 and 6 (categories of Qualifying Income, permanent establishment income, immovable property income)
- Ministerial Decision No. 229 of 2025, Article 2 (Qualifying Activities and Excluded Activities)
Frequently asked questions
What is a Beneficial Recipient?
Cabinet Decision No. 100 of 2023 describes it as the person who has the right to use and enjoy the goods or services and has no contractual or legal obligation to supply them on to someone else. A reseller who passes goods on is not the Beneficial Recipient.
Is general trading a Qualifying Activity?
Not as such. The list covers trading of qualifying commodities and distribution of goods in or from a designated zone to customers who resell or process them. General trading with mainland customers outside those conditions does not appear on the list.
Related terms
Qualifying Free Zone Person · De minimis requirements · Designated zone · 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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