Corporate tax in free zones: the qualifying free zone person rules

Free zone companies are within UAE corporate tax and must register for it. Under Federal Decree-Law No. 47 of 2022, a qualifying free zone person (QFZP) pays 0% on its qualifying income and 9% on its other taxable income. To qualify, it must keep adequate substance in the free zone, earn qualifying income, stay within the de minimis limit, have audited accounts and follow transfer pricing rules.

Key takeaways

• Free zone companies are taxable persons and must register for corporate tax like any other UAE company.
• A qualifying free zone person pays 0% on qualifying income and 9% on its other taxable income, with no AED 375,000 zero band on that income.
• Qualifying and excluded activities are listed in Ministerial Decision No. 229 of 2025, which repealed the 2023 list and applies from 1 June 2023.
• Non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of total revenue in a tax period.
• A company that fails a condition loses qualifying status for that tax period and the next four.

On this page 10 sections

Do free zone companies pay corporate tax?

Yes. Article 11 of the Corporate Tax Law treats a company established in the UAE, including a free zone person, as a resident taxable person. The law and the FTA’s free zone guide also count a branch registered in a free zone as a free zone person; the guide adds that individuals and unincorporated partnerships cannot be one. Registration follows the mainland rules:

Registration deadline for a new company

3 months from incorporation

A resident juridical person incorporated, established or recognised in the UAE on or after 1 March 2024, including a Free Zone Person, must apply for Corporate Tax registration within three months of the date of incorporation, establishment or recognition.

Once registered, a free zone company is taxed in one of two ways:

The bands are explained in the standard corporate tax rates, registration steps in corporate tax registration, and other topics under Corporate tax guides.

The qualifying free zone person conditions

A free zone person is a QFZP only while it meets every condition throughout the tax period; the FTA treats it as qualifying unless a condition fails or it elects out. Article 18 of the law sets the core conditions, and Article 5 of Ministerial Decision No. 229 of 2025 adds the de minimis test and audited financial statements.

Rates for a qualifying free zone person

0% on Qualifying Income; 9% on other Taxable Income

A Qualifying Free Zone Person pays Corporate Tax at 0% on its Qualifying Income and at 9% on Taxable Income that is not Qualifying Income, provided it keeps meeting all the conditions (adequate substance, Qualifying Income, no election into the standard regime, transfer pricing compliance, audited financial statements, de minimis test).

The 0% rate runs for the rest of the free zone’s tax incentive period under its own legislation. A Cabinet decision can extend it, but no single period may exceed 50 years (Article 18(4)).

Adequate substance

The company must carry on its core income-generating activities, the essential work that earns its revenue, in the free zone, or in a designated zone for distribution. It needs adequate assets, enough qualified full-time employees and adequate operating spending there for each activity (Cabinet Decision No. 100 of 2023, Article 8). Neither the decision nor the FTA guide sets a minimum figure; the guide says adequacy depends on the facts of each case. Core work can be outsourced within a free zone if the company supervises it adequately.

Qualifying income

The company must earn qualifying income, described below. The FTA guide says a new company with no revenue yet is not disqualified for that reason alone, provided it has no non-qualifying revenue.

Audited financial statements

Audited accounts are a condition of the regime, whatever the company’s revenue (Article 5 of Ministerial Decision No. 229 of 2025). They follow Ministerial Decision No. 84 of 2025 for tax periods starting on or after 1 January 2025; Ministerial Decision No. 82 of 2023 still applies to earlier periods.

Who needs audited financial statements

Revenue over AED 50,000,000, any QFZP, and every Tax Group

For Tax Periods starting on or after 1 January 2025, a Taxable Person that is not a Tax Group and derives Revenue exceeding AED 50,000,000 in the Tax Period, and every Qualifying Free Zone Person whatever its Revenue, must prepare and maintain audited financial statements; every Tax Group must prepare and maintain audited special purpose financial statements in the form the FTA sets.

Transfer pricing

Dealings with related parties, and between the free zone business and any branch outside the free zone, must be at arm’s length (Article 34), with transfer pricing documentation such as a master file and local file where the thresholds are met (Article 55).

Not opting out

Under Article 19 a QFZP can elect to be taxed at the standard rates, from the start of the tax period of the election or of the next one. The FTA guide says the election can be made up to the due date of that period’s corporate tax return. It counts as leaving the regime, so the five-period rule below applies, and it brings back the 0% band, small business relief and tax groups, subject to their own conditions.

Qualifying activities

The list is in Ministerial Decision No. 229 of 2025. Income from a listed activity can earn 0% even when the customer is on the mainland or abroad.

Qualifying activities

13 Qualifying Activities plus ancillary activities

Ministerial Decision No. 229 of 2025 lists the Qualifying Activities of a Qualifying Free Zone Person: manufacturing goods or materials; processing goods or materials; trading Qualifying Commodities; holding shares and other securities for investment; owning, managing and operating ships; reinsurance; fund management; wealth and investment management; headquarter services to Related Parties; treasury and financing services to Related Parties or for its own account; financing and leasing aircraft; distribution of goods or materials in or from a Designated Zone; logistics services; and activities ancillary to these.

The decision was issued on 28 August 2025, applies from 1 June 2023 and repealed Ministerial Decision No. 265 of 2023, which the FTA’s May 2024 guide still cites. Two points in its text:

• A commodity counts only if it has a quoted price; retail-packaged products are left out, while environmental commodities such as carbon credits are in.
• Commodity trading does not qualify for a company whose revenue from distribution, warehousing, logistics or inventory management is 51% or more of its revenue for the tax period.

Excluded activities

Excluded activities never earn qualifying income in their own right, and their revenue counts against the de minimis limit unless it is one of the kinds left out of the test, such as free zone property income (see below).

Excluded activities

Excluded Activities under Article 2(2)

Excluded Activities for a Qualifying Free Zone Person are transactions with natural persons (except in ship operation, fund management, wealth and investment management and aircraft financing and leasing), banking, insurance (other than reinsurance and captive insurance as headquarter services), regulated finance and leasing (other than the qualifying commodity, ship, treasury and aircraft activities), ownership or exploitation of immovable property other than Commercial Property in a Free Zone dealt with a Free Zone Person, and activities ancillary to these.

Under Article 3(1)(d) of Cabinet Decision No. 100 of 2023, “any other income”, which the FTA guide says includes excluded-activity revenue, is qualifying income while the de minimis test is met. Above the limit, the company loses QFZP status altogether. Owning property outside the free zones is also excluded, so that rent counts in the test unless attributable to a permanent establishment (FTA guide, section 8.3).

Which income gets the 0% rate

Qualifying income is defined in Article 3 of Cabinet Decision No. 100 of 2023. Four kinds of income qualify, and three kinds are taxed at 9% even when they would otherwise qualify:

A sale to another free zone person qualifies only if the buyer is the beneficial recipient: it may use and enjoy the goods or services and has no obligation to pass them on (Article 3(3)). The activity need not be on the list; in an FTA guide example, a free zone law firm earns qualifying income from advising free zone companies.

The 9% items are also kept out of both sides of the de minimis test:

Revenue left out of the de minimis test

Permanent Establishment, certain Free Zone Immovable Property and non-qualifying intellectual property Revenue left out of both sides

For the de minimis test, total Revenue and non-qualifying Revenue leave out Revenue attributable to a Foreign or Domestic Permanent Establishment, Revenue from Immovable Property in a Free Zone (other than Commercial Property transactions with Free Zone Persons), and Revenue from owning or exploiting intellectual property other than Qualifying Income from Qualifying Intellectual Property; income from these sources is taxed at 9%.

Selling to mainland customers turns on the activity. Goods the company manufactures can earn 0%; consulting for a mainland company is non-qualifying revenue that counts towards the limit. An agent who habitually concludes contracts for the company in the UAE outside the free zone, or a fixed place of business there, can create a domestic permanent establishment taxed at 9% (FTA guide, section 7.3). Whether the company may trade on the mainland at all is a licensing question, covered in mainland vs free zone.

The de minimis test

The de minimis test allows a QFZP a small amount of non-qualifying revenue without losing its status. Article 3 of Ministerial Decision No. 229 of 2025 sets the limit, and it is measured on revenue, not profit.

De minimis limit on non-qualifying revenue

Lower of AED 5,000,000 or 5% of total Revenue

To keep Qualifying Free Zone Person status, a Free Zone Person's non-qualifying Revenue in a Tax Period must not exceed the lower of AED 5,000,000 or 5% of its total Revenue.

Non-qualifying revenue comes from excluded activities, from non-qualifying activities with customers that are not free zone persons, and from free zone customers that are not the beneficial recipient. The percentage sets the limit for smaller companies and the fixed cap for larger ones; they meet at total revenue of AED 100,000,000, where 5% equals AED 5,000,000.

Worked example

The de minimis limit for two free zone companies

The revenue figures are illustrations.

1. Company A: AED 20,000,000 total revenue × 5% = AED 1,000,000, lower than AED 5,000,000, so the limit is AED 1,000,000.
2. Company B: AED 150,000,000 total revenue × 5% = AED 7,500,000, higher than AED 5,000,000, so the limit is AED 5,000,000.

	Company A	Company B
Limit	AED 1,000,000	AED 5,000,000
Non-qualifying revenue	AED 800,000	AED 6,000,000
Share of total revenue	4%	4%
Result	Passes	Fails by AED 1,000,000

Company A keeps its status; Company B loses it for five tax periods, although both have 4% non-qualifying revenue.

Losing qualifying status

A company that fails any condition at any time in a tax period stops being a QFZP from the first day of that period, not from the date of the failure.

Period out of the regime

5 Tax Periods (the failing period plus the next 4)

A Qualifying Free Zone Person that fails any condition at any time during a Tax Period stops being a QFZP from the start of that Tax Period and for the four following Tax Periods, five Tax Periods in all; an election into the standard rates has the same effect from the start of the Tax Period in which the election takes effect.

Meanwhile it is taxed like any other company, at the standard rates on all its taxable income:

Upper limit of the 0% band

AED 375,000

The 0% Corporate Tax band covers Taxable Income up to and including AED 375,000 in a Tax Period; Taxable Income above AED 375,000 is taxed at 9%. The band applies once per Taxable Person, regardless of how many businesses it carries on.

In the FTA guide’s example, a calendar-year company that fails the de minimis test in 2024 is out for 2024 to 2028 and is tested again for 2029, however well it complies in between.

Worked example

Taxable income of AED 2,000,000 in a year without status

The income figure is an illustration; all of it would be qualifying income for a QFZP.

1. As a QFZP: AED 2,000,000 × 0% = AED 0.
2. Without status, the first AED 375,000 is taxed at 0%.
3. The rest, AED 1,625,000, is taxed at 9%: AED 146,250.

Corporate tax for the year: AED 146,250, against AED 0 as a QFZP.

No zero band, no small business relief

A QFZP gives up some general reliefs in return for the 0% rate. Its other taxable income is taxed at 9% from the first dirham, without the AED 375,000 band (FTA guide, section 3.3).

Small business relief exclusions

QFZPs and MNE Group members (group revenue AED 3.15 billion or more) excluded

A Resident Person that elects Small Business Relief must not be a Qualifying Free Zone Person or a Constituent Company of a Multinational Enterprises Group as defined in Cabinet Resolution No. 44 of 2020: a group with companies tax resident in different jurisdictions (or one company with a permanent establishment abroad) whose total consolidated group revenue in the fiscal year before the reporting year is AED 3.15 billion or more.

A QFZP also cannot join a tax group (Article 40) or use qualifying group relief, business restructuring relief or transfers of tax losses, and a loss on its qualifying income cannot be carried forward (FTA guide, sections 5.5 and 5.5.1). A free zone company outside the regime is not caught by these exclusions; small business relief has its own conditions.

Worked example

Qualifying income of AED 1,000,000 and other taxable income of AED 500,000

The figures follow an example in the FTA’s free zone guide, where the AED 500,000 is income of branches outside the free zone.

1. Qualifying income: AED 1,000,000 × 0% = AED 0.
2. Other taxable income: AED 500,000 × 9% = AED 45,000, with no 0% band.
3. For comparison, a company on the standard rates with taxable income of only AED 500,000 would pay (AED 500,000 minus AED 375,000) × 9% = AED 11,250.
4. Without QFZP status, all AED 1,500,000 would be taxed at the standard rates, with no other adjustments: (AED 1,500,000 minus AED 375,000) × 9% = AED 101,250.

Corporate tax due for the QFZP: AED 45,000.