A UAE free zone company pays 0% corporate tax only if it is a Qualifying Free Zone Person (QFZP). It must have real substance in the free zone, earn qualifying income, keep non-qualifying revenue under the lower of 5% of total revenue or AED 5 million, prepare audited financial statements, follow transfer pricing rules, and not have elected to be taxed at the standard rates. A free zone licence does not give QFZP status by itself. A company that misses a condition at any point in a tax period loses the status for that period and the next four. It is then taxed like a mainland company: 0% on the first AED 375,000 of taxable income and 9% above it. This guide is for 1–10 person companies in DMCC, IFZA, RAKEZ, Meydan and similar free zones that need to know whether the 0% rate really applies. It is general information, not tax advice; confirm your position with the Federal Tax Authority (FTA) or a registered tax agent.
What is a Qualifying Free Zone Person?
A Free Zone Person is any company or branch registered in a UAE free zone. A Qualifying Free Zone Person is one that also meets the conditions in Article 18 of the Corporate Tax Law (Federal Decree-Law No. 47 of 2022) and its implementing decisions. Being a QFZP changes the tax rate:
| Company type | Rate on qualifying income | Rate on other taxable income | AED 375,000 zero band | Small Business Relief |
|---|---|---|---|---|
| QFZP | 0% | 9% from the first dirham | No | Not available |
| Free zone company that is not a QFZP | Not applicable | 0% up to AED 375,000, 9% above | Yes | Available if revenue is AED 3 million or less |
| Mainland company | Not applicable | 0% up to AED 375,000, 9% above | Yes | Available if revenue is AED 3 million or less |
Every free zone company must register for corporate tax and file a return, whether or not it is a QFZP. Registration and filing are covered in our guide to UAE corporate tax for small companies.
What conditions does a free zone company have to meet?
The conditions come from Article 18 of the law, Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025. The company must meet all of them for the whole tax period.
| Condition | What it means in practice |
|---|---|
| Adequate substance | Core income-generating activities carried out in the free zone, with enough qualified full-time staff, assets and operating spending for the activity. Outsourcing is allowed to a provider in a free zone if you supervise it |
| Qualifying income | Income from other Free Zone Persons, or from qualifying activities with anyone else, as explained below |
| De minimis | Non-qualifying revenue no higher than 5% of total revenue or AED 5 million, whichever is lower |
| Audited financial statements | Required for every QFZP, whatever its size (Ministerial Decision No. 84 of 2025) |
| Transfer pricing | Transactions with related parties and connected persons at arm's length, with supporting documentation (Articles 34 and 55 of the law) |
| No election | The company has not elected to be taxed at the standard rates under Article 19 |
Threshold: De minimis limit = the lower of 5% of total revenue or AED 5,000,000 in the tax period. For any company with revenue under AED 100 million, the 5% figure is the lower one.
For a small company, substance means the people who do the work are employed by the free zone company and work from its free zone premises. A flexi-desk licence with the owner working from a mainland office is the weak case.
What are the qualifying activities under Ministerial Decision 229 of 2025?
Ministerial Decision No. 229 of 2025, issued on 28 August 2025, replaced Ministerial Decision No. 265 of 2023 with effect from 1 June 2023. It lists 14 qualifying activities:
| # | Qualifying activity |
|---|---|
| 1 | Manufacturing of goods or materials |
| 2 | Processing of goods or materials |
| 3 | Trading of qualifying commodities (metals, minerals, energy, agricultural commodities and, since MD 229, industrial chemicals, by-products and environmental commodities with a quoted price; not goods packaged for retail sale) |
| 4 | Holding shares and other securities for investment purposes (held for at least 12 months) |
| 5 | Ownership, management and operation of ships in international transport |
| 6 | Reinsurance services |
| 7 | Fund management services, under UAE regulatory oversight |
| 8 | Wealth and investment management services, under UAE regulatory oversight |
| 9 | Headquarter services to related parties |
| 10 | Treasury and financing services to related parties or for its own account |
| 11 | Financing and leasing of aircraft |
| 12 | Distribution of goods or materials in or from a Designated Zone, to customers who resell or process them, or to public benefit entities |
| 13 | Logistics services (storage, transport, freight forwarding, customs brokerage and similar, without taking title to the goods) |
| 14 | Activities ancillary to any of the above |
The same decision lists excluded activities. Income from these is always non-qualifying:
- Any transaction with a natural person, except for ships, fund management, wealth and investment management and aircraft financing.
- Banking, and insurance other than reinsurance and captive insurance within headquarter services.
- Regulated finance and leasing, except where it falls under commodities, ships, treasury or aircraft.
- Owning or exploiting immovable property, except commercial property in a free zone let to a Free Zone Person.
Consulting, marketing, IT services, design, recruitment, e-commerce and general trading are not on the list. That matters for most small free zone companies.
Which revenue counts as qualifying and which does not?
Cabinet Decision No. 100 of 2023 sorts income by who the customer is and what activity earned it.
| Customer | Activity | Treatment |
|---|---|---|
| Another Free Zone Person that is the beneficial recipient | Any activity that is not excluded | Qualifying |
| Another Free Zone Person that passes the goods or service on to someone else | Any activity | Non-qualifying |
| Mainland UAE company | Qualifying activity (for example logistics or manufacturing) | Qualifying |
| Mainland UAE company | Non-qualifying activity (for example consulting) | Non-qualifying |
| Foreign company | Qualifying activity | Qualifying |
| Foreign company | Non-qualifying activity | Non-qualifying |
| Any individual | Most activities (excluded activity) | Non-qualifying |
| Anyone | Income of a mainland branch or foreign branch | Taxed at 9%, left out of the de minimis test |
The beneficial recipient is the customer who uses the service or goods itself and has no obligation to supply them to someone else. A free zone agency that resells your work to a mainland client is not the beneficial recipient.
Two common beliefs are wrong. Foreign clients are not automatically fine: a consultancy billing a London company earns non-qualifying revenue, because consulting is not on the list. Mainland customers are not automatically fatal: a logistics company billing mainland companies keeps that revenue qualifying.
What about mainland customers?
For mainland work, check three things:
- Is the activity on the list? If not, every dirham billed to a mainland company counts towards the 5% limit.
- Is the customer a company or an individual? Sales to individuals are excluded activities in most sectors, wherever the individual is based.
- Do you have a place of business on the mainland? A domestic permanent establishment, such as a mainland office or a staff member habitually concluding contracts there, makes its income taxable at 9%.
Distribution of goods into the mainland qualifies only through a Designated Zone, to customers who resell or process the goods. FTA Decision No. 6 of 2026, according to Deloitte and other advisers, adds an annual agreed-upon procedures report from an independent auditor for QFZPs in Designated Zone distribution, for tax periods starting on or after 1 January 2026. The report is due no later than 30 days after the return deadline.
Worked examples: does 0% apply?
Example 1: a three-person consultancy in IFZA
Calendar-year company, revenue of AED 1,200,000, taxable income of AED 500,000.
| Line | AED |
|---|---|
| Consulting for free zone companies (beneficial recipients) | 600,000 |
| Consulting for mainland LLCs | 360,000 |
| Consulting for foreign companies | 240,000 |
| Total revenue | 1,200,000 |
| Non-qualifying revenue (mainland + foreign) | 600,000 |
| De minimis limit: lower of 5% × 1,200,000 = 60,000 and 5,000,000 | 60,000 |
| Result | Fails: 600,000 is above 60,000 |
The company is not a QFZP for this period and the next four. It is taxed like a mainland company. Without relief: (500,000 − 375,000) × 9% = AED 11,250. Revenue is under AED 3 million, so if revenue in every earlier period was also AED 3 million or less, it can elect Small Business Relief and pay AED 0. Ministerial Decision No. 131 of 2026 extended the relief to tax periods ending on or before 31 December 2029. For this company the 0% QFZP rate was never available, and Small Business Relief gives the same result without an audit requirement under the corporate tax rules.
Example 2: a five-person logistics company in RAKEZ that passes
Revenue AED 4,000,000. Logistics services to free zone, mainland and foreign companies (no individuals): AED 3,880,000. One consulting project for a mainland client: AED 120,000.
| Line | AED |
|---|---|
| Logistics revenue (qualifying activity, company customers) | 3,880,000 |
| Consulting revenue from a mainland client (non-qualifying) | 120,000 |
| Total revenue | 4,000,000 |
| De minimis limit: lower of 5% × 4,000,000 = 200,000 and 5,000,000 | 200,000 |
| Result | Passes: 120,000 is within 200,000 |
| Profit on logistics (qualifying income) at 0% | 900,000 → tax 0 |
| Profit on consulting (non-qualifying income) at 9%, no zero band | 50,000 → tax 4,500 |
| Corporate tax as a QFZP | 4,500 |
As a non-QFZP the same company would pay (950,000 − 375,000) × 9% = AED 51,750, and revenue above AED 3 million rules out Small Business Relief. QFZP status saves 51,750 − 4,500 = AED 47,250 a year, before the cost of the audit.
Example 3: the same company the following year, with one large mainland contract
Logistics revenue stays at AED 3,880,000, but the mainland consulting work grows to AED 300,000. Total revenue is 4,180,000. The limit is 5% × 4,180,000 = AED 209,000. Non-qualifying revenue of 300,000 is above it, so the company fails.
| Line | AED |
|---|---|
| Taxable income: 900,000 logistics + 150,000 consulting | 1,050,000 |
| Less 0% band | (375,000) |
| Taxed at 9% | 675,000 |
| Corporate tax for the year | 60,750 |
Within the limit, tax would have been 150,000 × 9% = AED 13,500. Status is lost from the start of that year and for the next four, so a 2026 failure means standard rates for 2026 through 2030 even if the consulting stops. Watch the 5% limit during the year, not only at year end.
Can a QFZP use Small Business Relief instead?
No. Ministerial Decision No. 73 of 2023 excludes QFZPs from Small Business Relief. A free zone company has to choose its route:
| Route | Who it suits | What it costs |
|---|---|---|
| QFZP (0% on qualifying income) | Companies in listed activities, or serving mainly other free zone companies, with non-qualifying revenue safely under 5% | Annual audit, substance, transfer pricing files, tight revenue monitoring |
| Not a QFZP, with Small Business Relief | Companies with revenue of AED 3 million or less in this and every earlier period, whatever their activity | Return filed every year; no corporate tax audit requirement |
| Not a QFZP, standard rates | Companies above AED 3 million that cannot meet the QFZP conditions | 9% above AED 375,000 of taxable income |
Under Article 19, a QFZP can elect to be taxed at the standard rates, from the start of the period in which it elects or the next one. Not having made this election is one of the QFZP conditions, so advisers generally treat an election as taking the company out of the regime for the same five-period window as a failure. Take advice before electing in or out. Your free zone authority may require audited accounts for licence renewal whichever route you take.
What are the registration and filing deadlines?
QFZPs follow the same calendar as every other company.
Deadline: Register for corporate tax within 3 months of incorporation (FTA Decision No. 3 of 2024, for companies formed on or after 1 March 2024). File the return and pay within 9 months of the end of each tax period. A QFZP attaches audited financial statements for every period starting on or after 1 June 2023.
| Item | Rule |
|---|---|
| Registration | Within 3 months of incorporation; late registration AED 10,000 |
| Tax return and payment | Within 9 months of the period end (31 December 2026 year end → 30 September 2027) |
| Late filing penalty | AED 500 per month for the first 12 months, then AED 1,000 per month |
| Late payment penalty | 14% per year on the unpaid tax, charged monthly |
| Audit | Every QFZP, every period |
| Designated Zone distributors | Agreed-upon procedures report within 30 days after the return deadline, for periods from 1 January 2026 |
| Record keeping | 7 years after the end of the tax period |
What should your books show to support 0%?
The FTA tests QFZP status against your records. Your books should show:
- Revenue by customer type: free zone, mainland, foreign or individual, with each customer's licence details on file.
- Revenue by activity, so non-qualifying revenue is one number, not a reconstruction.
- A monthly de minimis check against 5% of total revenue.
- Profit split between qualifying and non-qualifying income, with a reasonable cost allocation.
- Related-party transactions at market value, including payments to owners and any mainland sister company.
- Payroll and premises in the free zone, as evidence of substance.
From the platform: In Staks every invoice is issued to a customer record that carries the customer's tax number, and invoices, expenses, bills and payroll post to a double-entry ledger automatically. The Client Profitability report shows revenue per client for any date range, and each client's invoice list can be exported to CSV, so you can total revenue by free zone, mainland and foreign customers and check it against the 5% limit. The profit and loss, balance sheet and trial balance your auditor needs come from the same ledger. Accounting and reports are on the Growth plan ($49 per month) and above. Staks does not decide which income is qualifying, does not calculate the de minimis test and does not file returns; you or your tax agent make those calls.
Frequently asked questions
Does a free zone licence mean my company pays 0% corporate tax?
No. The licence makes you a Free Zone Person. The 0% rate applies only to qualifying income of a Qualifying Free Zone Person that meets every condition, including the audit and the de minimis limit. Many small free zone service companies are taxed at the standard rates and use Small Business Relief.
Can a free zone consultancy with only foreign clients be a QFZP?
Usually not. Consulting is not a qualifying activity, so revenue from foreign companies is non-qualifying. Only revenue from other Free Zone Persons that are the beneficial recipients would count. If that is less than about 95% of revenue, the company fails the de minimis test.
What happens if I go over the 5% limit by a small amount?
There is no tolerance. Non-qualifying revenue one dirham above the limit ends QFZP status from the start of that tax period and for the next four.
My free zone company sells to individuals online. Does that qualify?
No. Transactions with natural persons are excluded activities except in shipping, fund management, wealth and investment management and aircraft financing. E-commerce sales to consumers are non-qualifying revenue, wherever the buyer lives.
Related reading
- UAE corporate tax for small companies: registration, first return and penalties
- Do freelancers pay corporate tax in the UAE?
- Chart of accounts for a UAE small business
- Month-end close checklist for small businesses in the UAE
Check your activity against the MD 229 list, total your non-qualifying revenue against the 5% limit, and compare the QFZP route with Small Business Relief before your first return. Start a 14-day free trial of Staks to keep revenue by customer and a ledger your auditor can work from.