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

What QFZP is — and is not

A Qualifying Free Zone Person (QFZP) is a Free Zone Person that meets all five conditions of Cabinet Decision No. 100 of 2023. A QFZP pays 0% on Qualifying Income and 9% on Non-Qualifying Income (above the de minimis threshold). Standard Free Zone Persons that do not meet the conditions pay the same 9% above AED 375K as ordinary Resident Juridical Persons.

QFZP is narrower than the marketing in many setup-firm pages suggests. The 0% rate is real, but it requires substance, audited statements, and careful management of what is and is not Qualifying Income. The cost of maintaining QFZP often only makes sense above a certain revenue scale.

The five QFZP conditions

1. Adequate substance in a Free Zone — the qualifying activities are physically performed there with the necessary employees, expenditure, and assets. Outsourcing key functions outside the Free Zone is the most common substance failure.
2. Qualifying Income — income falling within the categories defined by Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023 (see below).
3. Arm's-length compliance — related-party transactions priced at arm's-length and supported by transfer-pricing documentation as required.
4. Audited financial statements — under Ministerial Decision No. 82 of 2023, every QFZP must produce IFRS-aligned audited financials for each tax period in which the regime is claimed.
5. No election to be subject to 9% — the entity has not opted out of the regime in favour of the standard rate.

All five must be met simultaneously and tested for each tax period. The QFZP status is per-period, not permanent.

What counts as Qualifying Income

Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023 list the qualifying activity categories. Practically, the most common sources of Qualifying Income for our client base:

• Income from transactions with other Free Zone Persons
• Income from designated qualifying activities — manufacturing of goods, processing of goods, distribution of goods from / through a designated zone, fund management, wealth management, headquarters services to related parties, treasury services to related parties, holding of shares and securities for investment, and a defined list of others
• Income ancillary to a qualifying activity, where the ancillary income does not exceed a defined proportion

Income from excluded activities — including income from immovable property other than commercial property in a Free Zone, banking activities, insurance activities, and finance and leasing activities (except specific categories) — is Non-Qualifying Income regardless of the customer.

The de minimis rule

A QFZP may earn limited Non-Qualifying Income without losing the regime. Under Ministerial Decision No. 265 of 2023, the threshold is the lower of:

• 5% of total revenue, OR
• AED 5 million in the tax period

Income above this de minimis cap is taxed at 9% AND triggers loss of QFZP status for the period. The de minimis is not a per-customer or per-contract test — it is the aggregate Non-Qualifying Income across the whole tax period. Tracking it monthly — not at year-end — is the work that protects the 0% rate.

Substance requirements

Substance under Cabinet Decision No. 100 of 2023 requires that the qualifying activity is undertaken in the Free Zone with adequate employees, adequate operating expenditures, and adequate physical assets relative to the level and nature of the activity. There is no single quantitative test — it is a facts-and-circumstances assessment.

In practice we look for: employees physically working from the Free Zone office (not from a co-working space outside the zone or from home offices in another emirate); a Free Zone trade licence aligned with the actual activity (not a residual licence kept while operations moved elsewhere); operating expenditures incurred in the zone (rent, payroll, utilities); and decision-making documented as taking place from the Free Zone.

Disqualification and the five-year exclusion

Failure to meet any QFZP condition in a tax period disqualifies the person for that period AND the four subsequent periods. There is no "we will fix it next year" recovery — once you fail in year N, the soonest re-qualification is year N+5. This is the single most expensive failure mode in the regime.

Mitigating it requires monthly substance tracking, monthly de-minimis monitoring, an annual audit timed before the return-filing deadline, and a clear protocol for borderline transactions (when in doubt, decline the contract or route it through a non-QFZP group entity).

When to engage Consorata

Engage at the start of the first tax period in which QFZP is claimed — so the substance file, the activity classification, the de-minimis tracker, and the audit firm engagement are all set up correctly from day one. For entities already in the regime, engage at any audit cycle to refresh the substance file and the Qualifying Income classification against current FTA guidance.