Free zone companies that meet the conditions to be a Qualifying Free Zone Person (QFZP) pay 0% Corporate Tax on qualifying income and 9% on the rest. The benefit is valuable, but the conditions are strict, and the cost of getting it wrong is high.
The conditions, in short
To be a QFZP for a tax period, a free zone company must:
- Maintain adequate substance in the free zone: core income-generating activities carried out there, with enough assets, qualified staff and operating costs
- Earn qualifying income
- Meet the de minimis test for non-qualifying income
- Not elect to be taxed at the standard rates
- Comply with transfer pricing rules and keep documentation
- Prepare audited financial statements
The de minimis test
A QFZP can still earn some non-qualifying revenue without losing its status, but only up to the lower of:
- 5% of total revenue, or
- AED 5 million
Some revenue is left out of the calculation, such as income attributable to a domestic or foreign permanent establishment, which is taxed separately.
For a company with AED 200 million in revenue, the limit is AED 5 million, not AED 10 million. For a company with AED 20 million, it is AED 1 million.
Qualifying activities: what Ministerial Decision No. 229 of 2025 changed
In August 2025 the Ministry of Finance issued Ministerial Decision No. 229 of 2025, which replaced Ministerial Decision No. 265 of 2023. It applies from 1 June 2023, so it may help businesses that were too cautious under the old rules. Key changes include:
- Commodity trading no longer requires commodities to be in "raw form". It now depends on the price being quoted by a recognised exchange or price reporting agency, and covers metals, minerals, energy, agricultural products and environmental commodities such as carbon credits.
- Treasury and financing services to related parties now include activity on the company's own account.
- Distribution in or from a Designated Zone continues to qualify, subject to the conditions, and distribution of goods to humanitarian or government supply chains is recognised.
Excluded activities still include most transactions with natural persons, regulated banking, most insurance and most leasing activities.
What happens if you fail
If a QFZP fails any condition, including the de minimis test, it stops being a QFZP from the start of that tax period and for the next four tax periods. That means 9% Corporate Tax on taxable income above AED 375,000 for at least five years.
How to stay inside the rules
- Classify every revenue stream as qualifying, non-qualifying or excluded from the test.
- Watch non-qualifying revenue during the year, not only at year end.
- Be careful with mainland customers and individuals: these are where non-qualifying revenue usually comes from.
- Document substance: staff, premises and decision-making in the free zone.
- Review commodity and treasury activity under the updated rules.
How Dreambooks helps
Dreambooks tags each income line as qualifying, non-qualifying or excluded, and shows non-qualifying revenue against the 5% and AED 5 million limits as you go, so you can act before the year closes rather than after.
Official sources
- Ministerial Decision No. 229 of 2025 regarding Qualifying Activities and Excluded Activities
- FTA: Corporate Tax legislation
This article is general information as of June 2026, not tax advice. Check the Corporate Tax Law, Cabinet Decision No. 100 of 2023, Ministerial Decision No. 229 of 2025 and the latest FTA guidance, or speak to your tax adviser, before acting.