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FORMENZO GUIDES · UAE FREE-ZONE FORMATION

Qualifying Free Zone Person (QFZP) — keeping 0% UAE Corporate Tax

How a free-zone company becomes a QFZP under UAE Federal Decree-Law 47/2022 — qualifying-income test, substance, de-minimis, and the activities list. The mechanism that lets eligible free-zone businesses keep 0% on qualifying income.

Last updated: Reviewed by · UAE-resident team · DubaiWorkbook-verified against authority pricing

Key topics on this page

  • QFZP
  • Qualifying Free Zone Person
  • UAE 0% corporate tax
  • qualifying income free zone
  • Cabinet Decision 100

Frequently asked questions

Is every UAE free-zone company a QFZP automatically?

No. A free-zone company is a juridical person and is therefore a taxable person under Federal Decree-Law No. 47 of 2022. QFZP status is an additional layer that requires the four cumulative conditions (substance, qualifying income, de-minimis, audit and transfer-pricing) to be met each tax period. Without those conditions, the 0% concessional rate is not available.

What does “qualifying income” mean?

Qualifying income is income from qualifying activities (set in Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023) with the right counterparties (typically other free-zone persons or persons outside the UAE), excluding income from excluded activities. The 0% rate applies to qualifying income only; non-qualifying income, even within de-minimis, is taxed at 9%.

What is the de-minimis rule?

De-minimis tolerates a small amount of non-qualifying revenue without losing QFZP status. The cap is the lower of 5% of total revenue or AED 5,000,000. Stay under the cap and you remain a QFZP (with the non-qualifying part taxed at 9%); cross the cap and you lose QFZP status for that tax period and the next four.

Is the AED 375,000 threshold also available to a QFZP?

No. A QFZP applies 0% to qualifying income directly; the AED 375,000 0% band that applies to standard taxable persons is not separately available to a QFZP. Non-qualifying income of a QFZP is taxed at 9% from the first dirham.

Can a QFZP also elect for Small Business Relief?

No. The QFZP regime and Small Business Relief (Ministerial Decision No. 73 of 2023) are mutually exclusive paths. A free-zone person electing for Small Business Relief is not eligible to be a QFZP, and a QFZP is not eligible for Small Business Relief.

Do I need audited financial statements as a QFZP?

Yes. Audited financial statements prepared on a basis acceptable to the FTA, by an auditor on the FTA's approved list, are a hard condition for QFZP status. The audit must be ready in time to support the Corporate Tax return (generally filed within nine months of year-end).

Can a QFZP serve UAE mainland customers?

Selling to UAE mainland customers as a free-zone person is permitted under the law, but the income from those sales is generally not qualifying income for QFZP purposes. The effect is that mainland-customer income is treated as non-qualifying and is taxed at 9%, subject to the de-minimis rule. Crossing the de-minimis cap costs you QFZP status for five tax periods.

What happens if I cross the de-minimis cap?

You lose QFZP status for that tax period and the next four tax periods. All taxable income for those five tax periods is subject to the standard Corporate Tax rules at 9% (above the AED 375,000 standard-regime threshold). Income that would have been qualifying is no longer 0% during the loss window.

Can I opt out of QFZP status?

Yes. A free-zone person can elect to be subject to Corporate Tax at the standard rates, on the Corporate Tax return. The election binds the free-zone person for the period of election and the following four tax periods. Discuss the trade-offs with a UAE tax adviser before opting out.

What substance do I need in the UAE?

Substance is fact-specific. The FTA looks at qualifying full-time employees, operating expenditure in the UAE, and premises appropriate to the level of activity. Outsourcing to a related party or third party inside the UAE is allowed provided the QFZP supervises and controls the outsourced activity. Substance has to scale with revenue.

Does Formenzo advise on QFZP status?

No. Formenzo is an aggregator and comparison platform. We compare AED prices from uploaded workbooks, run a bank-readiness signal, and surface Corporate Tax registration steps in your case checklist. We do not opine on QFZP status, qualifying income, substance, or transfer pricing. Work with a UAE-licensed tax adviser for the QFZP analysis.

When should I have the QFZP conversation with a tax adviser?

Before signing the lease and before hiring the first qualifying employee. Substance, the activity catalogue choice, and the structuring of related-party flows all need to be decided up front. Retrofitting a structure to be QFZP-compliant after the first tax period is significantly more expensive than designing it correctly from day one.

Sources cited

Citations are to public UAE law and authority publications. Formenzo's own pages are not authoritative on the law itself — read the cited source for the operative text.

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