Key Takeaways
- A Qualifying Free Zone Person (QFZP) pays 0% on its Qualifying Income and 9% on the rest of its taxable income. Unlike other companies, it doesn't get the 0% band on the first AED 375,000.
- Consulting or marketing sold to mainland customers isn't on the list of Qualifying Activities. That income is non-qualifying under Ministerial Decision 229 of 2025.
- Once non-qualifying revenue goes above 5% of total revenue or AED 5,000,000, whichever is lower, the company loses QFZP status for that tax period and the next four.
- Every QFZP has to have its financial statements audited. It also can't claim Small Business Relief.
- A free zone on the VAT list of Designated Zones isn't automatically a Designated Zone for Corporate Tax. The Federal Tax Authority (FTA) says so in clarification TAXP010, October 2026.
Many founders assume a free zone licence comes with 0% Corporate Tax. It doesn't. The 0% rate belongs to a Qualifying Free Zone Person, a status your company has to earn by passing a test in every tax period. Fail the test once and the status goes. That is the position as of October 2026.
What a Qualifying Free Zone Person is
A Free Zone Person is a company or branch registered in a free zone, an area with its own authority that licenses companies under its own rules. It becomes a Qualifying Free Zone Person (QFZP) when it meets the conditions in Article 18(1) of Federal Decree-Law 47 of 2022, the Corporate Tax law.
A QFZP pays 0% on Qualifying Income and 9% on any other taxable income. Ordinary companies get a 0% band on their first AED 375,000 of taxable income. A QFZP doesn't (Federal Decree-Law 47 of 2022, Article 3, and Cabinet Decision 116 of 2022).
The status needs every condition below. Miss one and it's gone, so go through the list against your own business plan before you count on the free zone rate.
- Adequate substance in the UAE, meaning real people, assets and spending there.
- Qualifying Income as defined by Cabinet Decision 100 of 2023.
- No election to be taxed under the standard regime instead (Article 19).
- Prices with related companies set as if the parties were strangers, called the arm's length rule (Article 34), plus transfer pricing records that show it (Article 55).
- Two more conditions from Ministerial Decision 229 of 2025: non-qualifying revenue below a small allowance known as the de minimis, and audited financial statements.
Ministerial Decision 229 of 2025 came out on 28 August 2025. It applies back to 1 June 2023 and replaces Ministerial Decision 265 of 2023.
A company that fails the test is taxed like any other: 0% up to AED 375,000 and 9% above that. It has to register for Corporate Tax in both cases, and the Corporate Tax registration guide walks through how. One caution on sources. The English texts on tax.gov.ae and mof.gov.ae are not official translations.
Which activities qualify and which are excluded
Two things decide whether income qualifies: who pays you and what you sell. Where your licence was issued doesn't change the answer. The Qualifying Activities are listed in Article 2(1) of Ministerial Decision 229 of 2025.
Manufacturing and processing are on that list. So are trading in Qualifying Commodities, logistics services, and distributing goods in or from a Designated Zone, a free zone on an official government list. Holding shares as an investment counts if you keep them for at least 12 months without a break. Owning and operating ships, financing and leasing aircraft, and reinsurance (insurance bought by insurers) also qualify. The list ends with fund and wealth management, headquarter services to related companies, treasury and financing services to related companies or for the company's own account, and ancillary activities that support the others.
Article 2(2) sets out the Excluded Activities. Sales to individual people are excluded, apart from deals involving ships, fund management, wealth management and aircraft. Banking is out. Insurance is out too, except reinsurance. Finance and leasing are excluded, with exceptions for commodities financing, ships, treasury and aircraft. Owning or exploiting property is excluded as well, unless it's commercial property in a free zone and the other side is another Free Zone Person.
Consulting, marketing and accounting aren't on either list. Sell them to a mainland customer, meaning a business based anywhere in the UAE outside a free zone, and the income is non-qualifying (Ministerial Decision 229 of 2025; FTA guide on the regime, May 2024).
Use the table to check how common kinds of free zone income are treated.
| Income | Treatment | Reason |
|---|---|---|
| Goods made in the free zone and sold to a mainland distributor | Can be Qualifying Income | Manufacturing is a Qualifying Activity |
| Consulting billed to a mainland company | Non-qualifying | Not a Qualifying Activity, and it counts against the de minimis |
| Consulting billed to another Free Zone Person | Can be Qualifying Income | The other company is the one that benefits, and the activity isn't excluded |
| Online sales to consumers | Non-qualifying | Sales to individual people are excluded |
| Rent from a mainland property | Non-qualifying | Income from property is excluded |
| Income of a permanent establishment | Non-qualifying | Income of a taxable presence elsewhere, in the UAE or abroad, doesn't qualify |
How the de minimis test works and how status is lost
In each tax period, your non-qualifying revenue can't go above 5% of total revenue or AED 5,000,000, whichever is lower (Ministerial Decision 229 of 2025, Article 3). With AED 10,000,000 of revenue, your limit is AED 500,000. With AED 200,000,000 of revenue, 5% would be AED 10,000,000. The AED 5,000,000 cap is lower, and that's the limit that applies.
Fail the test and you lose QFZP status from the start of that tax period, and for the next four as well (Article 5(2); FTA clarification TAXP010). All the income of that period is then taxed at the standard rates. Choosing to leave the regime under Article 19 has the same effect over five periods (FTA guide, May 2024).
Here's an example. A free zone consultancy earns AED 2,000,000, all of it billed to mainland clients. Its non-qualifying revenue is 100% of the total, way over both limits. Say its taxable income is AED 1,000,000. At the standard rates it owes AED 56,250. That's 9% of the AED 625,000 above the AED 375,000 band. The figures only illustrate the point and aren't a forecast. The owner who expected 0% would have budgeted for no tax at all, and if the numbers don't change, the same bill comes in each of the five periods.
Plenty of owners treat 0% as the rate for everything a free zone company earns. The error usually shows up when someone checks the first mainland invoice against the test. You don't need an adviser to avoid it. Track your revenue each month by type of customer, which is exactly the data the test asks for.
Mainland income and the Dubai permits
Dubai gives a free zone company three ways to work on the mainland under Executive Council Resolution 11 of 2025 (Articles 4, 7 and 12). You can open a mainland branch. You can run a branch from your free zone office, which costs AED 10,000 a year. Or you can take a six-month permit for AED 5,000. Those are the options as of October 2026. The Free Zone Mainland Operating Permit, launched on 8 October 2025, is that six-month permit. The Dubai Media Office says 9% Corporate Tax applies to the revenue earned under it.
A permanent establishment is a fixed place of business that creates a taxable presence. Income linked to one inside the UAE is not Qualifying Income (FTA guide, May 2024). Before you count on 0% for any income from a mainland branch, ask your adviser whether the branch creates one. Article 3 of the Resolution already makes you keep separate accounts for the mainland activity, and those accounts give you the numbers for the test.
For how the licence choice and the mainland question work together, see the free zone company guide.
Audit, transfer pricing and substance
Every QFZP must have audited financial statements (Ministerial Decision 229 of 2025, Article 5(1)(b)). An audit firm prepares them, and you should put the cost in your yearly budget before you plan around the 0% rate.
Substance means the company's main money-making work happens in the free zone, with enough assets, full-time staff and running costs there. You can outsource that work, but only to people in the zone and under proper supervision. This comes from the FTA guide of May 2024, which was written before Ministerial Decision 229 of 2025.
Transfer pricing means you keep records proving that deals with related companies are on arm's length terms. A QFZP also can't claim Small Business Relief (Ministerial Decision 73 of 2023, Article 3). While you hold the status, the AED 3,000,000 relief isn't something to fall back on.
FTA Decision 6 of 2026 adds one more duty for a QFZP that distributes goods in or from a Designated Zone. Its auditor has to prepare an agreed-upon-procedures report, a check on specific points that the auditor and company agree in advance. Here the points are whether customers are resellers and whether the goods came in through the Designated Zone. The report is due within 30 days after the Corporate Tax return deadline. Without it, the condition counts as not met. The rule covers tax periods starting on or after 1 January 2026.
Designated Zone for VAT versus for Corporate Tax
A Designated Zone is a free zone the government has put on a special list. FTA Public Clarification TAXP010 of October 2026 keeps four labels apart: free zone for Corporate Tax, Designated Zone for Corporate Tax, Designated Zone for excise tax and Designated Zone for VAT. Check each one on its own.
Distribution income only qualifies if it comes from a Corporate Tax Designated Zone. The goods have to enter the UAE through a Designated Zone and go to resellers, processors or a public benefit entity. A zone can be on the VAT list and still fail this test. The VAT registration guide explains the VAT side.
Questions for a new free zone company
Go through these in order before you send your first invoice. If the answer to any of them is no, don't plan on the 0% rate.
- Is the company a Free Zone Person under its zone's law, and does that law give a tax incentive period?
- Who will pay you: other free zone companies, mainland companies or consumers?
- Is each product or service on the Qualifying Activities list and clear of the Excluded Activities?
- Will non-qualifying revenue stay below 5% of revenue or AED 5,000,000, whichever is lower?
- Will the people, assets and spending behind the main activities be in the free zone?
- Can you pay for an audit every year and keep transfer pricing records?
If question 3 or 4 fails, work out your tax as a standard company would pay it: 0% up to AED 375,000 and 9% above. Small Business Relief may then help. It applies to tax periods ending on or before 31 December 2029 where revenue stays within AED 3,000,000 (Ministerial Decision 131 of 2026).
The status is tested again every tax period. A corporate tax consultant can set up the monthly revenue check with you, ideally before your first mainland client signs.
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