Qualifying Free Zone Person 2026: the QFZP Checklist That Keeps Your 0% Rate

A Qualifying Free Zone Person — QFZP — is the best tax status a UAE business can hold. Under Article 18 of Federal Decree-Law 47 of 2022, a QFZP pays 0% Corporate Tax on qualifying income and 9% on any taxable income that is not qualifying income (the AED 375,000 nil-rate band does not apply to a QFZP). The status is a 12-point test you have to pass every tax period. Miss one condition and the 0% rate is gone for the current year plus the next four.

This is the qualifying free zone person checklist we run for free zone corporate tax clients in Meydan, RAKEZ, DMCC, IFZA, JAFZA and ADGM — the same QFZP conditions and requirements the FTA tests on review. It pairs with the UAE Free Zone Qualifying Income Checker — a two-minute tool that applies the de-minimis rule against your real numbers.

What QFZP actually means

A QFZP is a juridical free zone person — a company, branch or other corporate body — that meets every condition in Article 18 and the supporting decisions. This qualifying free zone person checklist works through each of the QFZP conditions and requirements a free zone company has to satisfy under UAE corporate tax law:

• Federal Decree-Law 47 of 2022 — primary law, Articles 18 and 19
• Cabinet Decision 100 of 2023 (formerly 55 of 2023) — Qualifying Income
• Ministerial Decision 229 of 2025 (replacing 265 of 2023) — Qualifying and Excluded Activities
• Ministerial Decision 139 of 2023 — original de-minimis and activities rules, since superseded
• Ministerial Decision 84 of 2025 — audited financial statements

The 0% rate applies only to qualifying income — not all of a free zone company’s revenue. Everything else is taxed at 9% under Article 3(2)(b), with no nil-rate band attached to it. If the de-minimis ceiling is breached, the entity loses QFZP status for the current period plus the next four and drops onto the standard rates in Article 3(1) instead — 0% on taxable income up to AED 375,000 and 9% above it, per Articles 2 and 3 of Cabinet Decision No. 116 of 2022. That is the one respect in which failing is marginally softer than qualifying badly: a QFZP gets no AED 375,000 band on its non-qualifying income, while a plain Free Zone Person does.

The instruments this checklist is built on

Every condition below traces to a specific article in a specific decision, and several of the decisions people still quote have been repealed. Ministerial Decision No. 229 of 2025 repealed Ministerial Decision No. 265 of 2023 outright under its Article 6, while applying retroactively from 1 June 2023 under Article 7 — so a 2024 position argued on the old text is being tested against the new one.

Last verified: 5 August 2026 against the texts published by the Ministry of Finance and the Federal Tax Authority.

Two of those deserve emphasis because they are the ones most often quoted at the wrong number. Article 3 of Ministerial Decision No. 229 of 2025 fixes de minimis at 5% of total revenue or AED 5,000,000, whichever is lower — not whichever is higher, and not AED 5,000,000 flat. Article 2(1) of Ministerial Decision No. 97 of 2023 fixes the master-file and local-file trigger at AED 200,000,000 of the taxable person’s own revenue or AED 3,150,000,000 of consolidated multinational group revenue. Figures well below those, quoted as if they were the documentation thresholds, are a recurring error in free zone commentary.

Velmont Crest is a DED-licensed accounting firm and authorised channel-partner status with Meydan Free Zone and RAKEZ.

Qualifying free zone person vs free zone person

The two terms get used interchangeably, but they are not the same thing, and the gap between them is where the tax sits. A Free Zone Person is any juridical entity licensed in a UAE free zone — the moment your FZE or FZ-LLC is incorporated, you are one. A qualifying free zone person is a Free Zone Person that also clears every condition in Article 18 of Federal Decree-Law 47 of 2022. Only the second one earns the 0% rate.

Put simply: every qualifying free zone person is a free zone person, but not every free zone person qualifies. A dormant flexi-desk company with no real substance is a Free Zone Person paying 9% like any mainland business. Change nothing about the licence, add genuine staff, real premises and income inside the qualifying activity list, keep non-qualifying revenue under the de-minimis ceiling, and the same entity becomes a qualifying free zone person on 0%.

That is why the checklist matters more than the licence. The free zone authority issues your permit once; the qualifying free zone person test is re-run by you every tax period and re-checked by the FTA on review. Losing the status does not cancel your licence — it simply moves your income from 0% to 9%. Our wider free zone corporate tax note covers where that line falls.

The 12 QFZP conditions, one by one

Every condition below has to be met in the same tax period. There’s no “mostly QFZP” — it’s pass or fail, and one miss fails the lot.

1. Free Zone Person status — juridical, not natural

Only juridical persons (companies, branches, FZE/FZ-LLC entities) can hold QFZP status. Sole establishments and natural persons under a freelance permit are excluded, even if they hold a free zone licence. The licence must be issued by a Free Zone as defined in Federal Decree-Law 47 of 2022 — Meydan, RAKEZ, DMCC, IFZA, JAFZA, ADGM, DIFC, KIZAD, Hamriyah and the other recognised UAE free zones.

2. Adequate substance in the UAE

The QFZP must conduct its core income-generating activities (CIGA) in the free zone, with adequate full-time employees, operating expenditure and physical assets matching the activity. A flexi-desk shell that books revenue offshore will fail on inspection. The test borrows its vocabulary from the Economic Substance Regulations UAE businesses filed under before corporate tax arrived, but it is a corporate tax condition in its own right, sitting in Article 18 rather than in the ESR framework.

Do not assume a past ESR notification settles the QFZP substance question, and check the current status of ESR filing obligations with the Ministry of Finance before you rely on either — our economic substance regulation overview covers the older regime. CIGA can be outsourced in the UAE only with adequate supervision.

3. Qualifying Income — within Cabinet Decision 100/2023

Qualifying income covers:

• Income from transactions with other Free Zone Persons, where the Free Zone Person is the beneficial recipient of the goods or services
• Income from a defined list of Qualifying Activities in Ministerial Decision 229/2025 (which replaced 265/2023), regardless of counterparty

Qualifying Activities include manufacturing and processing, holding of shares, fund and wealth management, headquarter services to related parties, treasury and financing for related parties, aircraft financing and leasing, logistics, and distribution from a Designated Zone. Anything outside this list is non-qualifying. Factories are the classic beneficiaries here — our overview of manufacturing companies in the UAE explains why zone-based manufacturers find QFZP genuinely achievable rather than theoretical.

4. Not elected for standard Corporate Tax

A free zone company can voluntarily elect into the standard 9% regime. Article 19 of Federal Decree-Law No. 47 of 2022 sets out the election and when it takes effect, but not how long it binds you; on the FTA’s Free Zone Persons corporate tax guidance the election runs for the tax period in which it is made and the following four tax periods — five periods in total. If your accountant has ticked the wrong box on EmaraTax to “simplify” filing, QFZP is closed until the election period ends.

5. Audited financial statements

Audited financial statements are mandatory for every QFZP regardless of revenue — no de-minimis exemption applies, a point covered in full in our guide to whether free zone companies need an audit in the UAE. The audit must follow IFRS or IFRS for SMEs and be performed by a UAE-registered auditor. Engage the auditor in month one of the financial year, not month twelve. Velmont Crest provides audit preparation and liaison; the signature itself is issued by a separately registered audit firm.

Read that in reverse and the practical point is that audited financial statements are a condition of the regime rather than something triggered by turnover, so a free zone company well below the AED 50 million line still needs one — and the firm signing it has to clear Ministry of Economy registration and your own authority’s approved list before you appoint it.

6. The de-minimis test

Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million in any tax period. Note the word “lower” — for a company with AED 50 million revenue, the ceiling is AED 2.5 million (5%), not AED 5 million.

Total revenue is calculated excluding revenue from foreign permanent establishments, domestic permanent establishments and immovable property. Those revenues are taxed at the 9% rate separately but do not enter the de-minimis denominator.

7. Transfer pricing documentation — Articles 55 and 56

Transfer pricing rules apply to QFZPs in full. Article 2(1) of Ministerial Decision No. 97 of 2023 makes a Master File and Local File mandatory where the taxable person’s own revenue in the tax period is AED 200,000,000 or more, or where it is a constituent company of a multinational enterprise group with total consolidated group revenue of AED 3,150,000,000 or more. Below those thresholds, a contemporaneous transfer pricing study, intercompany agreements and benchmarking are still needed to support arm’s-length related-party transactions — Article 55 of the Corporate Tax Law applies regardless of size.

8. Arm’s-length principle on related-party transactions

Every transaction between the QFZP and its related parties or connected persons must be priced on an arm’s-length basis, whether the related party is UAE, free zone or offshore. The FTA can adjust the price on review, and the adjustment flows directly into the de-minimis calculation.

9. Not earning Excluded Activity income

Excluded Activities under Ministerial Decision 229/2025 (which replaced 265/2023) include banking, insurance (other than reinsurance), financing and leasing arrangements with natural persons, ownership of immovable property other than commercial property within a free zone, and ownership of IP other than qualifying IP. Excluded Activity income is always non-qualifying, even from another free zone person. A single Excluded Activity invoice can push the de-minimis ceiling.

10. Designated Zone status — for goods

If the QFZP distributes goods, the distribution must originate from a Designated Zone. Designated Zones are a sub-set of free zones (JAFZA, DAFZA, Hamriyah, Sharjah Airport International, RAKEZ and others). Distribution from a non-Designated Zone is never qualifying, regardless of counterparty. Designated Zone treatment for VAT and for corporate tax overlap but are not identical.

11. Filing the QFZP position correctly on EmaraTax

The QFZP claim has to be presented on the corporate tax return, filed through EmaraTax within nine months of financial year-end. The return must disclose qualifying and non-qualifying revenue separately, apply the de-minimis calculation explicitly, attach the audited financial statements and confirm the substance, transfer pricing and Excluded Activity positions. A late or incomplete return triggers a penalty under Cabinet Decision 75 of 2023 and can cost the 0% rate on procedural grounds.

12. Record-keeping for at least seven years

Under Article 56 of the Corporate Tax Law, all books, records and transfer pricing documentation supporting the QFZP claim must be kept for at least seven years after the end of the tax period. Records must be retrievable in audit-quality format — bank statements, contracts, invoices, related-party agreements, board minutes, substance evidence.

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QFZP is not a tax position you take at year-end — it is an operating control you run each quarter alongside VAT, payroll and management accounts. The 12-point checklist is the quarterly rhythm; the audit and the return are the annual evidence pack.

Your quick qualifying free zone person checklist

If you want the qualifying free zone person checklist in one scannable pass, here is the short version of the twelve conditions above — the questions to answer before every corporate tax return:

• Is the entity juridical (FZE, FZ-LLC or branch), not a sole establishment or freelancer?
• Is it licensed in a Free Zone as defined in the Corporate Tax Law?
• Are the core income-generating activities, staff and premises genuinely in the UAE?
• Does the income sit inside the qualifying activity list, or come from another free zone person as beneficial recipient?
• Is non-qualifying revenue under the lower of 5% of total revenue or AED 5 million?
• Have you avoided electing into the standard 9% regime?
• Are audited financial statements prepared under IFRS by a UAE-registered auditor?
• Is transfer pricing documented at arm’s length for every related-party transaction?
• Is any Excluded Activity income kept out of the qualifying pot?
• For goods, does distribution start from a Designated Zone?
• Will the return, with revenue split out, be filed on EmaraTax within nine months of year-end?
• Are records kept for at least seven years?

Answer yes to all twelve and you hold the status. A single no breaks it, and the break runs five years, not one. Run the UAE Free Zone Qualifying Income Checker to test the de-minimis line on your live numbers before you commit the position on EmaraTax.

Six ways we’ve watched a clean QFZP status break

Every one below is real, taken from advisory reviews. None of them looked dramatic at the time, and all of them cost the client the 0% rate.

The first is mainland trading without a permit. A free zone consultancy invoices a Dubai mainland client for a one-off project; the invoice is non-qualifying, and if it pushes non-qualifying revenue past the lower of 5% or AED 5 million, QFZP is lost for five years.

The second is an Excluded Activity that nobody flagged as one — a free zone holding company makes a director loan or shareholder advance. That’s a financing arrangement with a natural person, so the interest (or the arm’s-length imputed interest) is non-qualifying.

Substance failure is the third. Picture AED 12 million of revenue against one part-time employee and no UAE operating expenditure, with the CIGA actually performed offshore. On inspection the substance test fails and the entity is treated as an ordinary 9% taxpayer.

Then there’s the de-minimis breach by rounding, which stings the most because it’s so small. Non-qualifying revenue of AED 5,000,001 on total revenue of AED 80 million blows past the 5% ceiling (AED 4 million) and the AED 5 million cap by a single dirham. Five-year clawback all the same.

Late audited accounts do it too. The financial year ends 31 December, the audit only signs off the following November, the corporate tax return goes in late, and the 0% claim fails on procedural grounds — nothing to do with the numbers themselves.

The sixth is an inadequate transfer pricing file: significant related-party transactions, but no Local File, no benchmarking, no intercompany agreement. On audit the FTA imposes a transfer pricing adjustment that re-characterises qualifying income as non-qualifying, and the de-minimis breach follows on behind it.

A DMCC consultancy with mixed income

A DMCC management consultancy holds a free zone licence and an audited financial year ending 31 December 2026.

Revenue mix for the year:

Non-qualifying revenue: AED 3,940,000.

De-minimis ceiling: the lower of

• 5% of total revenue = AED 1,422,000
• AED 5,000,000

So the binding ceiling is AED 1,422,000. Non-qualifying revenue of AED 3,940,000 exceeds it. QFZP status is lost for the year ending 31 December 2026 and the four following tax periods. The full AED 28.44 million of taxable income is subject to 9% Corporate Tax (above AED 375,000), and the corporate tax return is filed under the standard regime.

Fix, modelled before year-end: route mainland client B through a separately licensed mainland subsidiary (kept off the de-minimis denominator); refinance or convert the director loan; rebill foreign client C as a Qualifying Activity if it falls within headquarter or treasury services to the parent group. Modelled in October, the position can be saved. In February of the following year, it cannot.

Run your own numbers with the UAE Free Zone Qualifying Income Checker, or pair it with the UAE Corporate Tax Calculator to see the 9% liability if QFZP is lost.

Where QFZP sits next to the other reliefs

• Small Business Relief under Ministerial Decision 73 of 2023 is not available to QFZPs — you cannot claim both. If you’re a mainland or non-QFZP entity weighing the trade-off, our free UAE Small Business Relief checker confirms eligibility against the AED 3M threshold and MNE-group condition in under a minute.
• Participation exemption on dividends and capital gains can apply to a QFZP and is treated as qualifying income where the holding test is met.
• Foreign tax credit is not relevant to QFZP qualifying income (taxed at 0%) but applies to non-qualifying income.
• The Domestic Minimum Top-up Tax (DMTT) under Pillar Two applies to MNE groups with consolidated revenue above EUR 750 million — for those groups, the 0% QFZP rate may be topped up to 15%. SMEs and mid-market free zone companies are not yet in scope.

See our UAE Corporate Tax Exemptions guide for the full map.

How to become a qualifying free zone person

Becoming a qualifying free zone person is a design decision, not a form you tick after the fact. The cleanest route is to build the twelve conditions into the structure on day one rather than retrofitting them once revenue is already mixed.

Start with the licence. Incorporate a juridical entity in a Free Zone as defined in the Corporate Tax Law, and match the licensed activity to the qualifying activity catalogue rather than a broad catch-all. Give the company real substance from the outset — a lease, staff who actually perform the core work, and operating spend that fits the activity. Set up the bookkeeping so every invoice is tagged qualifying or non-qualifying at the point it is posted, which is what turns the de-minimis test into a live number instead of a year-end surprise.

Engage a UAE-registered auditor in month one, and put intercompany agreements and transfer pricing benchmarking in place before any related-party invoice goes out. If you are still at the formation stage, our note on Dubai free zone company formation walks through the setup choices, and our corporate tax services cover the registration and first-return work. Designing for the status is always cheaper than repairing it in year two.

How Velmont Crest helps

QFZP is the best tax status in the UAE and the easiest to lose. The 12-point checklist is the test, the de-minimis rule is the trap, the audited statements are the evidence. Treat it as ongoing UAE free zone tax compliance rather than a one-off setup task: run the checklist quarterly, tag qualifying and non-qualifying revenue at posting time, and have the audit and TP files ready before year-end.

Planning a free zone setup? Build the QFZP test into the structure on day one. The zone, the activity list, the audit firm and the bookkeeping system all flow from it. Restructuring after year one always costs more than designing for QFZP at incorporation — and if the answer is to wind down a free-zone entity rather than restructure it, our guide on mainland versus free-zone liquidation in the UAE sets out how a free-zone closure differs from the mainland route.

Velmont Crest, a Dubai accounting firm provides QFZP advisory support across corporate tax registration, return preparation, transfer pricing documentation, audit assistance and quarterly checklist reviews. We are a DED-licensed UAE accounting firm and authorised channel partner with Meydan Free Zone and RAKEZ. Get in touch for a QFZP position review against your live revenue ledger.

Disclaimer: Velmont Crest is a DED-licensed accounting firm. We provide advisory, preparation and compliance support services. QFZP rules, qualifying activity lists and decisions are updated frequently — verify every figure and condition against the current source decisions and consult a licensed legal or tax professional for advice specific to your circumstances before relying on this material.

References

• Federal Decree-Law No. 47 of 2022 on Corporate Tax — Articles 18 and 19
• Cabinet Decision No. 100 of 2023 on Qualifying Income
• Ministerial Decision No. 229 of 2025 on Qualifying Activities and Excluded Activities — replaced Ministerial Decision No. 265 of 2023
• Federal Tax Authority — EmaraTax
• Ministry of Finance — UAE Corporate Tax