If you have a free zone business, you may be eligible to pay 0% corporate tax in the UAE. As a Qualifying Free Zone Person (QFZP), your profits are not subject to taxation. In this blog, we will define a qualifying person in the UAE and the eligibility criteria for QFZPs.
What is a Qualifying Free Zone Person in the UAE?
A Qualifying Free Zone Person is basically a free zone company that meets certain requirements, which lets it enjoy a 0% corporate tax rate on its “qualifying income.” A QFZP has two tax rates:
The following income is not considered qualifying income and is taxed at 9%:
- 0% on qualifying income
- 9% on other taxable income
Qualifying Business Activities
According to the FTA, these are the activities in UAE free zones where corporate tax is 0% in 2025:| Category | Description |
| Manufacturing/Processing | Manufacturing or processing of goods or materials. |
| Trade | Trading raw metals, minerals, energy, or agricultural products on a recognized commodities exchange. |
| Holding & Management | Holding shares and other securities for investment, and providing regulated fund, wealth, or investment management services. |
| Shipping & Aviation | Owning, managing, and operating ships for international transport, and financing or leasing aircraft. |
| Group Services | Headquarter, treasury, and financing services for related companies. |
| Logistics & Distribution | Distributing goods from a Designated Zone to resellers and providing logistics services like storage or transport without owning the goods. |
| Insurance | Reinsurance services. |
- Income from a Foreign Permanent Establishment (FPE)
- Income from a Domestic Permanent Establishment (DPE) outside the Free Zone in the UAE
- Income from property (except for commercial property transactions with other Free Zone businesses)
- Income from general intellectual property, except for qualifying IP income
What are the Qualifying Free Zone Entity Rules in the UAE?
You will be considered a Qualifying Free Zone Person in the country if you satisfy the following conditions:
- You have to be registered, incorporated, or established in a free zone.
- Your business should carry out its activities in the free zone by doing its main work there, having enough assets and full-time staff, and spending enough on operating expenses.
- You should earn “qualifying income,” mainly from dealing with other free zone businesses or from approved activities.
- Your non-qualifying revenue should be lower than 5% of total revenue or AED 5 million, whichever is less.
- Your business should follow arm’s-length rules, keep the required transfer pricing records, and have audited financial statements.
- You should not have chosen to be taxed under the regular UAE corporate tax rules.
If a QFZP doesn’t meet the rules, it loses its status for that year and the next four years. During this time, it pays the regular UAE corporate tax and is not eligible for certain tax benefits or transfer tax losses.
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How to Become a QFZP in the UAE
If you’re a business interested in becoming a QFZP, this is how you can do it:
1. Meet Legal Requirements
- Your business cannot be a company or branch registered in a UAE Free Zone.
- Your business cannot choose standard UAE corporate tax rates.
- Your business cannot prepare and keep audited financial statements, no matter the revenue.
2. Show Operational Substance
- Your business has to perform your core income-generating activities within the Free Zone.
- Your business should maintain enough assets, qualified employees, and operating expenses to support your activities.
- Your business should properly supervise any outsourced activities.
3. Generate Qualifying Income
- Your business has to generate income from other Free Zone Persons, making sure they are beneficial recipients.
- Your business has to earn income from non-Free Zone Persons only if the activity is a Qualifying Activity.
- Your business has to earn income from qualifying intellectual property.
- Your business cannot earn any income from Domestic or Foreign Permanent Establishments, most property income, or general IP.
4. Meet the De Minimis Rule
- You should calculate your non-qualifying revenue, make sure it doesn’t exceed 5% of your total revenue or AED 5,000,000, whichever is lower.
- Your non-qualifying revenue should be minimal to maintain your QFZP status.
5. Stay Compliant with Pricing Rules
- Your business has to follow the arm’s length principle for all transactions with related parties.
- Your business should maintain transfer pricing documentation if thresholds apply (master file, local file, disclosure form).
- Keep accurate financial records to support your qualifying income and activities.
6. Maintain Your Status
- If you don’t meet all the above requirements, you will lose QFZP status for the current and next four tax periods.
- This means your business will be liable to pay corporate tax.
- You cannot claim certain tax reliefs (Small Business Relief, Qualifying Group Relief, Business Restructuring Relief, or transfer of tax losses) if you lose this status.
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A&A Associate is the UAE’s largest business setup advisory. Along with offering comprehensive business setup support, we also house expert tax consultants who can help you manage your corporate tax responsibilities and check your eligibility to become a QFZP. Get in touch for a free consultation!
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