UAE Free Zone Qualifying Income — What Qualifies for 0% Tax Rate 2026
Qualifying Free Zone Persons (QFZPs) enjoy 0% UAE corporate tax on their qualifying income. Understanding what is and is not qualifying income is critical. Here is the 2026 guide.
In this guide:
Who Is a Qualifying Free Zone Person?
A UAE free zone entity is a QFZP if:
- It maintains adequate substance in the free zone
- It derives qualifying income
- It does not elect to be subject to standard UAE CT
- It complies with transfer pricing rules
- Its non-qualifying revenue does not exceed the De Minimis threshold (5% of total revenue or AED 5 million, whichever is lower)
What Is Qualifying Income?
Under Cabinet Decision No. 100 of 2023:
Qualifying Income Includes:
- Income from transactions with other free zone persons (including free zone persons in the same or different UAE free zones)
- Income from transactions with non-free zone persons that relates to qualifying activities
- Any other income that qualifies under ministerial decisions
Qualifying Activities Include (from the qualifying activities list):
- Manufacturing of goods
- Processing of goods
- Holding of shares and other securities for investment purposes
- Ownership, management, and operation of ships
- Reinsurance services regulated by relevant UAE authorities
- Fund management services regulated by relevant UAE authorities
- Wealth and investment management services regulated by relevant UAE authorities
- Headquarters services to related parties
- Treasury and financing services to related parties
- Financing and leasing of aircraft and ships
- Distribution of goods in or from a Designated Zone
- Logistics services
- Any activity ancillary to the above
What Is NOT Qualifying Income?
- Income from transactions with UAE mainland businesses (generally)
- Income from UAE immovable property (real estate)
- Income from intellectual property (unless specific IP income rules apply)
- Income not derived from qualifying activities
What Happens to Non-Qualifying Income?
Non-qualifying income of a QFZP is taxed at 9% UAE CT rate. If non-qualifying income exceeds the De Minimis threshold, the entire business loses QFZP status for that tax period and all income is taxed at 9% (or 0% SBR if eligible).