The QFZP De Minimis Rule, With a Worked Example (5% or AED 5m)

The QFZP de minimis rule sets a ceiling on how much non-qualifying revenue a Qualifying Free Zone Person can earn and still keep the 0% rate. That ceiling is the lower of AED 5,000,000 or 5% of total revenue in the tax period — and for any company with total revenue below AED 100 million, the 5% test binds first.

That last sentence is the part most readers get wrong. The AED 5 million figure is the one that circulates, so people assume they have AED 5 million of headroom. A company with AED 8 million of revenue has AED 400,000.

What is the de minimis rule for free zone companies?

A Qualifying Free Zone Person pays 0% corporate tax on Qualifying Income and 9% on anything else. The de minimis rule is the tolerance built into that split: a small amount of non-qualifying revenue does not cost you QFZP status, provided it stays under the lower of AED 5,000,000 or 5% of total revenue in the period. Exceed it and you lose the regime, not just the rate on that slice.

The legal basis is Cabinet Decision No. 100 of 2023, made under Article 18 of Federal Decree-Law No. 47 of 2022. The current list of Qualifying and Excluded Activities sits in Ministerial Decision No. 229 of 2025, which replaced MD 265 of 2023.

The two thresholds, and why it is the lower of them

There are two numbers and one operator, and the operator is what does the work.

• AED 5,000,000 — a flat cap, the same for every company.
• 5% of total revenue — a proportional cap that scales with the business.

You apply whichever produces the smaller figure. The two cross at AED 100 million of total revenue, because 5% of AED 100 million is exactly AED 5 million. Below that revenue level the percentage test always binds. Above it the flat cap always binds.

Practically, that means almost every free zone SME in the UAE is governed by the 5% test and not by the AED 5 million number they have read about.

A worked example

Company A: AED 20,000,000 total revenue.

• 5% of AED 20,000,000 = AED 1,000,000
• The flat cap = AED 5,000,000
• The lower of the two = AED 1,000,000

So Company A can earn up to AED 1,000,000 of non-qualifying revenue and keep QFZP status. At AED 1,100,000 it breaches. Not "pays 9% on the excess" — breaches.

Company B: AED 200,000,000 total revenue.

• 5% of AED 200,000,000 = AED 10,000,000
• The flat cap = AED 5,000,000
• The lower of the two = AED 5,000,000

Company B is the only one of the two where the AED 5 million figure is the real limit.

| | Company A | Company B | |---|---:|---:| | Total revenue | AED 20,000,000 | AED 200,000,000 | | 5% test | AED 1,000,000 | AED 10,000,000 | | Flat cap | AED 5,000,000 | AED 5,000,000 | | Applicable limit | AED 1,000,000 | AED 5,000,000 | | Which test binds | 5% | Flat cap |

Both figures above are arithmetic on the published thresholds, not company data. Run the same two lines on your own revenue and you have your answer in thirty seconds.

What revenue is excluded from the calculation

The test does not run over every dirham that passes through the company. Cabinet Decision No. 100 of 2023 excludes certain revenue from the de minimis calculation entirely:

• Revenue attributable to a foreign Permanent Establishment
• Revenue attributable to a domestic Permanent Establishment
• Revenue from immovable property in the free zone that is not commercial property transacted with another Free Zone Person
• Revenue from non-qualifying intellectual property

Those categories are dealt with separately rather than being netted into the ratio, and they carry their own consequences. If any of them apply to you, the de minimis test is not the only thing you need to look at, and the exact mechanics are worth reading in the decision itself rather than in a summary.

What happens if you breach it

You lose QFZP status for the tax period in which the failure occurred, and for subsequent tax periods. That means all of your income — including income that would otherwise have been Qualifying Income — moves onto standard treatment: 0% up to AED 375,000 and 9% above it, under Cabinet Decision No. 116 of 2022.

A note on precision, because this is the number everyone quotes. FTA-derived guidance and every major professional-services summary describe the consequence as loss of status for 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 statutory text to confirm that duration verbatim, so we are citing guidance rather than the law itself. Treat "the current period plus subsequent periods" as certain and the precise count of four as well-corroborated guidance pending our own verification against the primary text.

The same consequence applies if you simply elect out of the regime. The election is not a switch you can flip back next year.

The separate 51% limit for commodity traders

There is a second threshold that only affects QFZPs trading Qualifying Commodities. Under MD 229 of 2025, revenue from distribution, warehousing, logistics and inventory-management functions must not equal or exceed 51% of total revenue from that activity.

This is an anti-abuse limit, not part of the general de minimis test — the two run independently. We should flag the sourcing: this characterisation comes from PwC's analysis of MD 229 of 2025, and we have not verified the exact article wording against the decision text. If you are a commodities trader, have your adviser read the article rather than relying on this paragraph.

How to check whether you are close to the line

Five questions, in order.

1. What is your total revenue for the period? Multiply by 5%. If that number is below AED 5 million — which it is unless you turn over more than AED 100 million — that is your limit.
2. Which of your revenue lines are Qualifying Income? Transactions with other Free Zone Persons who are the beneficial recipient, income from Qualifying Activities with non-free-zone customers, and qualifying IP income. Our breakdown of the current Qualifying Activities list covers what changed in 2025.
3. Which lines are Excluded Activities? Banking, insurance other than reinsurance, most finance and leasing, transactions with natural persons outside the carve-outs, and most immovable property. These never qualify, regardless of who the counterparty is.
4. Add up everything that is neither. That is your non-qualifying revenue. Compare it with the limit from question 1.
5. Are you within 20% of the line? If so, this needs to be a monthly number, not an annual surprise. A single unbudgeted contract in month eleven can cost you the regime for years.

The context nobody selling you a licence mentions

Free zones market the 0% rate heavily and are considerably quieter about the conditions attached to it. DMCC is a fair example: its own pages promote 0% corporate tax on qualifying income and 0% personal income tax, and they do not set out the QFZP conditions a company has to meet to get there. That is not misleading in itself — it is federal law, not zone policy, and no zone can grant or withhold QFZP status. But it does mean the reader has to go and find the conditions, which is what this cluster of posts exists to do.

If you want the whole picture rather than this one rule, start with the eight QFZP conditions as a checklist and work down. And if you are choosing a zone rather than filing in one, DMCC's own data page shows exactly what it publishes on tax — and what it leaves to you.