UAE free zone companies can benefit from 0% Corporate Tax on “Qualifying Income” from “Qualifying Activities” — but only if they meet all conditions of Qualifying Free Zone Person (QFZP) status. Here is the definitive reference for which activities qualify.
Qualifying Activities (Ministerial Decision 139 of 2023)
Trading in goods: Manufacturing, processing, or trading of goods in or from a free zone (including goods imported from abroad and re-exported). Services to other free zone entities: Providing any service to another free zone company that is not a domestic UAE person. Holding of shares and other securities: Dividends and capital gains from qualifying shares and securities. Treasury and financing activities: Interest income from intragroup lending or placing of cash. Ownership and exploitation of intellectual property: Royalties and licensing income from qualifying IP (with substance requirements). Distribution of goods or materials: Within a designated zone (customs bonded area).
Excluded Activities (Generate Standard-Rated Income)
Income from the following activities is EXCLUDED from QFZP 0% treatment and is taxed at the standard 9% rate: transactions with UAE mainland individuals and businesses (B2C or B2B with mainland UAE customers), banking, insurance, finance, and leasing services conducted in the UAE (requires DFSA/FSRA/UAE Central Bank licence), and ownership and exploitation of real estate in the UAE outside designated zones.
Substance Requirements for QFZP Status
The free zone company must: be incorporated in a UAE free zone; not elect to be subject to the standard rate; have adequate substance (employees, expenditure, assets) in the free zone; derive income only from Qualifying Activities or non-taxable Passive Income; and not have any UAE mainland permanent establishment.