Qualifying status review
We test each condition against the facts: adequate substance in the free zone, qualifying income, no election for the standard rates, transfer pricing compliance, the de minimis limit and audited financial statements.
Plan · Free zone
Keep the free zone 0% rate, every tax period
A free zone entity pays 0% only as a Qualifying Free Zone Person (QFZP), and only on qualifying income. We test every condition, map each revenue stream against the current activity rules and track the de minimis limit on non-qualifying revenue, so the position is known before the return is filed.
- Qualifying income
- 0%
- for a Qualifying Free Zone Person
- All other income
- 9%
- with no 0% band on the first AED 375,000
- De minimis limit
- 5% or AED 5m
- of total revenue, whichever is lower
- Cost of failing
- 5 periods
- the period of failure plus the next four
Plan
Who this is for
- Free zone entities whose group tax plan assumes the 0% rate.
- Companies with some revenue from mainland customers or from individuals, and no clear view of the de minimis headroom.
- Commodity traders, and entities providing treasury, financing or headquarter services to the group, that need to know where the 2025 rules moved the line.
- Distributors operating in or from a Designated Zone, which from 2026 need an independent auditor's agreed-upon procedures report.
- Regional hubs whose staff, premises or decision-making sit largely outside the free zone, raising questions about adequate substance.
- Groups setting up a new free zone entity that should qualify from its first tax period.
What we do
The work, end to end.
Income mapping under the 2025 rules
We classify every revenue stream as qualifying or non-qualifying under Ministerial Decision No. 229 of 2025, including the Quoted Price test for commodities, own-account treasury and Designated Zone distribution.
De minimis monitoring
Non-qualifying revenue must stay within 5% of total revenue or AED 5 million, whichever is lower. We track it during the year, so a likely breach can be addressed before year end rather than discovered afterwards.
Transfer pricing
A QFZP must deal with related parties at arm's length, the price independent parties would agree. We document the related-party pricing and prepare the disclosures the return requires.
Designated Zone distributors
From 2026 tax periods, distribution in or from a Designated Zone qualifies only with an agreed-upon procedures (AUP) report from an independent auditor. We prepare the records and reconciliations the auditor will test.
Structure and substance
Where an activity cannot qualify, we consider whether it belongs in a separate entity for genuine commercial reasons, and whether people, premises and decision-making support adequate substance in the free zone.
The return
We compute qualifying and non-qualifying income separately, apply 0% and 9% correctly and file the return on EmaraTax as your registered tax agent.
How it works
Clear steps. No guesswork.
- 1
Day 1
Initial review
At no charge, we look at the licence, the activities and the revenue mix, and identify where the risks sit.
- 2
Typically 2 to 3 weeks
Income and substance analysis
We map revenue streams, contracts, staff and premises against the conditions and the activity lists.
- 3
Typically 1 week
Written assessment
Whether the entity qualifies, how much de minimis headroom it has and what to change before year end.
- 4
Quarterly
In-year monitoring
We track non-qualifying revenue against the limit and flag business changes that affect the status.
- 5
After year end
Year end and return
Audited financial statements, the AUP report where it applies, and a return that applies 0% and 9% correctly.
What you get
Deliverables
- A written QFZP eligibility assessment, condition by condition
- A revenue map classifying each income stream as qualifying or non-qualifying
- A de minimis tracker, updated during the year and checked again before each year end
- Transfer pricing documentation for related-party dealings
- An AUP readiness file for Designated Zone distribution, where it applies
- A corporate tax return with qualifying and non-qualifying income computed separately
Know the law
The rules in brief
- 1
A Qualifying Free Zone Person pays 0% on qualifying income and 9% on all other taxable income, without the AED 375,000 band at 0%.
Federal Decree-Law No. 47 of 2022, Art. 3(2)
- 2
To qualify, a free zone person must have adequate substance in the free zone, derive qualifying income, not elect the standard rates, comply with the transfer pricing rules, meet the de minimis requirement and prepare audited financial statements.
Federal Decree-Law No. 47 of 2022, Art. 18; Cabinet Decision No. 100 of 2023; Ministerial Decision No. 229 of 2025, Art. 5
- 3
Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower.
Ministerial Decision No. 229 of 2025, Art. 3
- 4
Failing a condition removes QFZP status from the start of that tax period and for the following four tax periods.
Federal Decree-Law No. 47 of 2022, Art. 18(2); Ministerial Decision No. 229 of 2025, Art. 5(2)
- 5
Qualifying and excluded activities are listed in Ministerial Decision No. 229 of 2025, which replaced Ministerial Decision No. 265 of 2023 with effect from 1 June 2023.
Ministerial Decision No. 229 of 2025, Art. 2
- 6
From tax periods starting on or after 1 January 2026, Designated Zone distribution qualifies only if an independent auditor's AUP report is submitted within 30 days after the return deadline.
FTA Decision No. 6 of 2026
- 7
A Qualifying Free Zone Person cannot elect Small Business Relief.
Ministerial Decision No. 73 of 2023, Art. 3
No. Only a Qualifying Free Zone Person pays 0%, and only on qualifying income. A free zone company that misses a condition is taxed at the standard rates: 0% on the first AED 375,000 of taxable income and 9% above it. Every free zone company must register and file a return either way.
Ministerial Decision No. 229 of 2025 lists 13: manufacturing; processing; trading Qualifying Commodities; holding shares and securities for investment, with a 12-month holding requirement; owning, managing or operating ships; reinsurance; fund management; regulated wealth and investment management; headquarter services to related parties; treasury and financing for related parties or on the company's own account; aircraft financing and leasing; distribution in or from a Designated Zone; and logistics. Activities ancillary to these also qualify. Income from a qualifying activity can still be non-qualifying if the transaction falls into an excluded activity, such as most dealings with individuals.
The excluded list includes transactions with individuals (except in shipping, fund management, wealth and investment management, and aircraft financing and leasing), banking, insurance other than reinsurance and captive insurance provided as headquarter services, regulated financing and leasing (with some carve-outs), and immovable property other than free zone commercial property dealt with other free zone persons. Activities ancillary to these are excluded too. Income from excluded activities is non-qualifying, so it is taxed at 9%.
Ministerial Decision No. 229 of 2025 replaced the earlier list in Ministerial Decision No. 265 of 2023, with effect back to 1 June 2023. Commodities no longer need to be in raw form: they qualify if they pass a Quoted Price test, meaning a price on a recognised exchange or from a price-reporting agency recognised under Ministerial Decision No. 230 of 2025, and environmental commodities such as carbon credits and renewable energy certificates were added. Treasury now covers activity on the company's own account, and Designated Zone distribution now covers supplies to public benefit entities. Because the change is retroactive, positions taken in earlier returns may be worth revisiting.
Non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower. A company with AED 20 million of revenue can therefore have up to AED 1 million of non-qualifying revenue. Above AED 100 million of total revenue, the AED 5 million cap is the lower figure and applies instead.
The company loses QFZP status from the start of the tax period in which it failed, and for the next four tax periods. That is five periods at the standard rates, even if the problem is fixed the following year. This is why we monitor the conditions during the year rather than only when the return is prepared.
Not while it is a Qualifying Free Zone Person, because Small Business Relief is closed to QFZPs. A free zone company that is not a QFZP can elect it if it meets the AED 3 million revenue test and the other conditions. For a smaller free zone entity, the two routes are worth comparing before relying on either.
It can. The Domestic Minimum Top-up Tax applies to UAE entities, free zone entities included, of multinational groups with consolidated revenue of EUR 750 million or more in at least two of the four preceding financial years. A QFZP in such a group may pay 0% corporate tax and still be liable to Top-up Tax.
Often needed together
Talk to us
Is the free zone entity still qualifying?
Send us the licence and a breakdown of last year's revenue. We will show how close the entity is to the de minimis limit and which conditions need attention. The first conversation is free.
- FTA Registered Tax Agency
- Tax team with Big Four audit-firm experience
- Mon to Fri, 9:00 am to 6:00 pm (GST)
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