UAE Qualifying Free Zone Persons (QFZPs) are subject to 0% Corporate Tax on “Qualifying Income” and 9% on other income. Here is a complete guide to UAE free zone CT qualifying income rules.
What Is a Qualifying Free Zone Person (QFZP)?
A QFZP is a free zone company (or branch) that meets all of these conditions: incorporated, established, or registered in a UAE free zone, maintains “adequate substance” in the free zone (relevant physical operations, employees, or management), derives “Qualifying Income” only (or non-qualifying income does not exceed the de minimis threshold), has adequate level of assets and employees (relative to the income), and has audited financial statements. Not a QFZP: free zone companies that have significant mainland UAE business, free zone companies with no physical substance, or free zone companies that have elected for regular UAE CT.
What Is Qualifying Income?
Qualifying Income (0% CT rate) includes: income from transactions with other free zone persons (both the payer and recipient must be free zone persons), income from international transactions with non-UAE persons (e.g., a DMCC company providing services to a UK client), income from qualifying IP (intellectual property developed or enhanced in the UAE), and income that the Cabinet Decision specifically designates as qualifying. Non-Qualifying Income (9% CT rate): income from UAE mainland customers (unless it is excluded domestic income), income from UAE government entities, and income from most activities with UAE residents if the payer is not a free zone person.
De Minimis Threshold for Non-Qualifying Income
A QFZP can still maintain its 0% status if its non-qualifying income does not exceed 5% of total revenue OR AED 5 million (whichever is lower) — the de minimis rule. Exceeding this threshold: the company loses QFZP status for that tax year and all income is taxed at 9%.