UAE Qualifying Free Zone Person: How the 0% Corporate Tax Rate Works in 2026

The Conditions for the 0% Rate

Only a free zone person can qualify: a legal entity incorporated, established or registered in a free zone, including a branch. Article 18 of the Corporate Tax Law requires it to maintain adequate substance, derive qualifying income, not elect into the standard regime under Article 19, and follow the transfer pricing rules in Articles 34 and 55. Ministerial Decision No. 229 of 2025 adds two conditions: non-qualifying revenue within the de minimis limit, and audited financial statements under Ministerial Decision No. 84 of 2025.

Substance is set by Article 8 of Cabinet Decision No. 100 of 2023. The company must carry out its core income-generating activities in a free zone, with adequate assets, an adequate number of qualified full-time employees and adequate operating expenditure. Core activities may be outsourced to another person in a free zone if the company supervises them adequately. No minimum headcount or spend is published; adequacy depends on the nature and scale of the activity.

Under Article 3(2) of the law, a QFZP has two rates: 0% on qualifying income and 9% on taxable income that is not qualifying income. It must still register, file a return within nine months of each period end and keep audited accounts whatever its revenue. It cannot claim Small Business Relief. Because not electing under Article 19 is itself a condition, opting into the standard regime is a multi-year decision.

Qualifying Income, Qualifying Activities and the 9% Carve-Outs

Cabinet Decision No. 100 of 2023 defines qualifying income in four parts: income from other free zone persons, unless from an excluded activity; income from non-free zone persons, but only for qualifying activities; income from qualifying intellectual property, such as patents and copyrighted software; and any other income, if the de minimis test is met. A sale counts as made to a free zone person only where that person is the beneficial recipient, so a customer contractually bound to pass the goods or services on to someone else does not count.

Ministerial Decision No. 229 of 2025 lists 14 qualifying activities: manufacturing and processing goods; trading qualifying commodities; holding shares and other securities; owning and operating ships in international transport; reinsurance; fund management; wealth and investment management; headquarter services to related parties; treasury and financing services to related parties or for the company’s own account; financing and leasing aircraft; logistics; distribution in or from a designated zone; and ancillary activities. It added industrial chemicals, by-products and environmental commodities such as carbon credits to qualifying commodities, where a quoted price exists, and applies from 1 June 2023.

Excluded activities are transactions with natural persons (except for shipping, aircraft, fund and wealth management), banking, insurance other than reinsurance, most finance and leasing, and owning or exploiting immovable property other than commercial property in a free zone. Distribution qualifies only from a designated zone, with goods entering the UAE imported through it. Designated zones are listed for VAT under Cabinet Decision No. 59 of 2017, as amended; not every free zone is one. Income of a mainland permanent establishment, property income except from free zone commercial property transactions with free zone persons, and income from non-qualifying intellectual property is taxed at 9% regardless.

The De Minimis Test and the Five-Period Rule

Article 3 of Ministerial Decision No. 229 of 2025 sets the limit: non-qualifying revenue in a tax period must not exceed 5% of total revenue or AED 5 million, whichever is lower. For a company with AED 40 million of revenue the limit is AED 2 million. Above AED 100 million of revenue the AED 5 million cap applies. Revenue attributable to a domestic or foreign permanent establishment, and certain revenue from free zone property, is left out of the calculation.

The penalty is severe. Under Article 5(2) of the decision, a company that fails any condition at any time during a tax period stops being a QFZP from the start of that period and for the next four. That means five tax periods taxed at the standard rates on all taxable income. A calendar-year company that breaches in 2026 cannot be a QFZP again before 2031. One large services contract with mainland clients can be enough. Because the decision reaches back to 1 June 2023, review returns already filed against the current list. Large multinational groups should also check how the domestic minimum top-up tax affects their 0% income.

QFZP Checklist for Each Tax Period

• Map each revenue stream: free zone customer, qualifying activity, excluded activity, intellectual property, permanent establishment or property.
• Confirm the beneficial recipient of each free zone sale.
• Track non-qualifying revenue during the year against the lower of 5% and AED 5 million.
• Keep staff, assets and decision-making in the free zone, and document supervision of any outsourcing.
• For commodity trading, confirm a quoted price exists; for distribution, confirm the designated zone and import route.
• Prepare audited accounts, transfer pricing support and the return within nine months.
• Model five tax periods at standard rates before electing out or taking on new mainland work.