Qualifying Free Zone Person (QFZP) Status for 0% Corporate Tax

A Free Zone Person qualifies for the 0% Corporate Tax rate on Qualifying Income by meeting cumulative requirements under the Corporate Tax Law and Cabinet Decision No. 100 of 2023: maintaining adequate substance in a Free Zone, deriving Qualifying Income from specified activities, not electing out of the QFZP regime, and ensuring compliance with transfer pricing and de minimis thresholds.

Legal Basis

• Federal Decree-Law No. 47 of 2022, Articles 18 and 19 (QFZP definition and Qualifying Income)
• Cabinet Decision No. 100 of 2023 on Determining Qualifying Income for Qualifying Free Zone Persons
• Ministerial Decision No. 229 of 2025 Regarding Qualifying Activities and Excluded Activities
• Ministerial Decision No. 134 of 2023 on General Rules for Determining Taxable Income

Analysis

Definition and Core Framework: A Qualifying Free Zone Person is a Free Zone Person that meets conditions prescribed by the Minister and has not elected to be subject to standard Corporate Tax rates [Federal Decree-Law No. 47 of 2022, Article 18(1)]. The QFZP benefits from a 0% rate on Qualifying Income while non-qualifying income is taxed at 9%.

Substance Requirements: The Free Zone Person must maintain adequate substance in the Free Zone, which includes:

• Conducting core income-generating activities in the Free Zone


• Having adequate qualified employees and operating expenditure


• Maintaining physical presence proportionate to activities undertaken

Qualifying Income Determination: Cabinet Decision No. 100 of 2023 specifies that Qualifying Income includes income derived from transactions with other Free Zone Persons (excluding Excluded Activities) and income from Qualifying Activities performed for any Person.

Key Requirements

• De Minimis Threshold: Non-qualifying revenue must not exceed the lower of AED 5 million or 5% of total revenue [Cabinet Decision No. 100 of 2023, Article 4]
• Excluded Activities: Income from activities listed in Ministerial Decision No. 229 of 2025 (e.g., transactions with mainland natural persons for certain goods/services) does not qualify for 0% treatment
• Transfer Pricing Compliance: Arm's length principles must be applied to Related Party and Connected Person transactions [Federal Decree-Law No. 47 of 2022, Article 34]
• Election: The Person must not have made an election under Article 19 to be subject to standard CT rates
• Audited Financial Statements: QFZPs must maintain audited financial statements [Ministerial Decision No. 84 of 2025]

Dependencies

QFZP status interacts with several other provisions:

• Tax Group eligibility: QFZPs cannot form or join Tax Groups with non-Free Zone Persons [Federal Decree-Law No. 47 of 2022, Article 40]


• Loss utilization: Tax Losses from Qualifying Income cannot offset non-qualifying income and vice versa

Critical Considerations

> ⚠️ Important: Failure to meet any condition in a Tax Period results in loss of QFZP status, and the Person cannot re-qualify for a minimum of 5 Tax Periods [Federal Decree-Law No. 47 of 2022, Article 18(2)].

> 💡 Note: The specific list of Qualifying Activities under Ministerial Decision No. 229 of 2025 should be reviewed carefully, as it replaced the earlier Ministerial Decision No. 265 of 2023 and contains updated activity classifications.