Qualifying Free Zone Person (QFZP) Explained

By Shihabudeen Pattasseri, FTA-Registered Tax Agent (TAAN 20056925) · Updated 2026-11-03

Free zone companies can pay 0% Corporate Tax on qualifying income, but only if they are a Qualifying Free Zone Person (QFZP). The status is not automatic, and it is easy to breach without realising. Here is what it takes.

The conditions to be a QFZP

• Maintain adequate substance in the UAE (people, premises, expenditure)
• Earn qualifying income as defined by the Corporate Tax law
• Not have elected to be subject to the standard 9% rate
• Comply with the arm's length principle and keep transfer pricing documentation
• Meet the de minimis requirement for non-qualifying revenue
• Prepare audited financial statements

Qualifying vs non-qualifying income

Qualifying income broadly includes income from transactions with other free zone persons, and certain qualifying activities. Income from mainland customers or from excluded activities is generally non-qualifying and taxed at 9%.

The de minimis rule

Non-qualifying revenue must stay within the lower of 5% of total revenue or AED 5 million. Exceed it, and the company can lose QFZP status for that period and the next four.

Why it matters

Losing QFZP status means 9% on all taxable income, not just the non-qualifying part. Because the conditions interact, free zone companies benefit from reviewing their position before year end rather than after.

Frequently asked questions

What is a Qualifying Free Zone Person?

A free zone company that meets all the Corporate Tax conditions to pay 0% on its qualifying income, including substance, qualifying income, transfer pricing and audited accounts.

Can a free zone company lose the 0% rate?

Yes. Breaching the de minimis rule or any core condition can cost QFZP status for that period and the following four tax periods.

Do QFZPs need audited accounts?

Yes. Audited financial statements are a condition of QFZP status, regardless of revenue.

← All insights