0% Free Zone Corporate Tax: The Eight QFZP Conditions as a Checklist

Free zone corporate tax eligibility for the 0% rate comes down to eight conditions, and you have to meet every one of them. Fail a single condition and you do not lose the rate on part of your income — you lose Qualifying Free Zone Person status entirely, for the period of the failure and for subsequent periods.

The 0% headline you see on zone marketing pages is real, but it is 0% on Qualifying Income for a company that satisfies all eight. It is not a blanket exemption, and no free zone grants it. QFZP status is a federal test administered by the Federal Tax Authority.

What is a Qualifying Free Zone Person?

A Qualifying Free Zone Person is a free zone company that meets all of the conditions in Article 18 of Federal Decree-Law No. 47 of 2022 and the decisions made under it. It pays 0% corporate tax on Qualifying Income and 9% on any taxable income that is not Qualifying Income. It is a status you can hold, fail, or elect out of — not a licence type you buy.

The eight conditions

Run your own company down this list. Each one is a pass/fail.

1. You are a Free Zone Person

You are incorporated, established or registered in a UAE free zone, or you are a branch registered there. This is the only condition that is automatic once you hold the licence.

Test: does your licence come from a free zone authority?

2. You maintain adequate substance in the zone

Cabinet Decision No. 100 of 2023, Article 8, requires that you undertake your core income-generating activities in a free zone or Designated Zone, and that you maintain adequate assets, an adequate number of qualified full-time employees, and an adequate amount of operating expenditure in the zone, relative to what you actually do. Core activities can be outsourced to a party in the free zone provided you retain adequate supervision.

"Adequate" is deliberately relative. There is no headcount minimum and no spend floor. What there is, is a proportionality test — and a company on a shared desk with no employees, claiming 0% on substantial income, is on the wrong side of it.

Test: if the FTA asked who performs your core activity, where, and what you spend on it, could you answer with documents?

3. You derive Qualifying Income

Qualifying Income has three routes under Cabinet Decision No. 100 of 2023, Article 3: income from transactions with other Free Zone Persons who are the beneficial recipient; income from Qualifying Activities with non-free-zone customers; and income from qualifying intellectual property. The current activity lists sit in Ministerial Decision No. 229 of 2025, which repealed MD 265 of 2023.

Test: can you map each revenue line to one of those three routes?

4. You have not elected out of the regime

QFZP treatment is not compulsory. A free zone company can elect to be taxed as an ordinary taxable person. That election has consequences beyond the current year, so it is not a decision to take casually.

Test: have you filed an election out? If not, you are in.

5. You comply with the arm's length principle

Transactions with Related Parties and Connected Persons must be priced as they would be between independent parties. This is not a free zone rule, it is a general corporate tax rule, but for QFZPs it is an explicit condition of the 0% regime rather than merely an adjustment risk.

Test: are your intercompany charges supportable?

6. You maintain transfer pricing documentation

Where the documentation requirements apply to you, you must actually maintain them. This is a separate condition from condition 5: correct pricing with no documentation still fails.

Test: does the file exist, now, rather than being something you would prepare if asked?

7. You meet the de minimis threshold

Non-qualifying revenue must stay under the lower of AED 5,000,000 or 5% of total revenue. Because the two cross at AED 100 million of revenue, almost every free zone SME is governed by the 5% test rather than the AED 5 million one — a company with AED 8 million of revenue has AED 400,000 of headroom, not AED 5 million. We work through both calculations here.

Test: multiply your total revenue by 5%. Is your non-qualifying revenue below that?

8. You prepare audited financial statements

Ministerial Decision No. 84 of 2025 sets a general threshold of AED 50,000,000 of revenue for audited financial statements — and then removes that threshold for QFZPs. Every Qualifying Free Zone Person must prepare audited financial statements regardless of revenue. A company with AED 100,000 of revenue claiming the 0% rate needs an audit.

Test: have you budgeted for an annual statutory audit? If you bought a licence at the AED 4,999 end of the market, almost certainly not.

What counts as Qualifying Income

Worth restating, because condition 3 is where most of the analysis actually happens.

• Income from transactions with other Free Zone Persons where that person is the beneficial recipient of the goods or services, excluding income from Excluded Activities.
• Income from Qualifying Activities conducted with non-free-zone persons — mainland UAE or foreign.
• Income from the ownership or exploitation of qualifying intellectual property.
• Any other income, provided the de minimis threshold in condition 7 is satisfied.

Excluded from Qualifying Income entirely: income attributable to a foreign or domestic Permanent Establishment, and income from most immovable property, other than commercial property in a free zone transacted with another Free Zone Person.

What 0% does and does not cover

| | Qualifying Free Zone Person | Ordinary taxable person | |---|---|---| | Rate on Qualifying Income | 0% | Not applicable | | Rate on other taxable income | 9% | 0% up to AED 375,000, then 9% | | AED 375,000 zero-rate band | Does not apply | Applies | | Audited financial statements | Required at any revenue | Required above AED 50,000,000 revenue |

The row that surprises people is the third. The AED 375,000 threshold in Cabinet Decision No. 116 of 2022 is not available to a QFZP. A QFZP's non-qualifying income is taxed at 9% from the first dirham. That is the trade-off for the 0% on the qualifying side, and it is why "we get the first AED 375,000 free as well" is wrong.

What happens if you fail a condition

You lose QFZP status for the tax period in which the failure occurred and for subsequent tax periods. All of your income then moves to standard treatment — 0% up to AED 375,000, 9% above.

On the precise duration: FTA-derived guidance and the major professional-services summaries consistently describe it as the period of failure plus the four subsequent tax periods, a five-period penalty box. We have not been able to load and quote the raw Article 18 text to confirm that count verbatim, so we present it as well-corroborated guidance rather than as a quoted statutory figure, and we will update this page when we have verified it directly.

The same consequence follows from electing out under condition 4.

Does the free zone you choose affect this?

No. The QFZP test is federal and identical in every free zone in the UAE. A zone cannot make you qualify and cannot disqualify you.

What varies by zone is adjacent: Designated Zone status changes VAT treatment on the movement of goods, and it is not the same thing as free zone status. Several of the best-known zones are not Designated Zones — DMCC and ADGM among them, contrary to a widespread market assumption. Zones also differ in whether they run an approved-auditor programme, which affects how easily you satisfy condition 8 in practice, not whether it applies.

DMCC is a useful illustration of the gap this post exists to fill. Its own pages promote 0% corporate tax on qualifying income and 0% personal income tax — accurate as far as it goes — and do not set out the eight conditions a company has to satisfy to get there. You can see exactly what DMCC publishes on our data page for the zone. That is not a criticism unique to DMCC; almost every zone markets the rate and leaves the conditions to you.

Next step

Take the checklist above and mark each of the eight conditions pass, fail, or unsure, today, using what you actually have rather than what you intend to have. Most companies find their weak points are conditions 2, 6 and 8 — substance, documentation, and the audit nobody budgeted for.

If you come out with more than one "unsure", that is a conversation with a UAE tax adviser rather than a comparison site, and it is a cheaper conversation now than after a period you have already filed.