In short
- 0% on qualifying income and 9% on other taxable income, with no AED 375,000 band.
- Other revenue may reach 5% of total revenue or AED 5 million, whichever is lower.
- One failed condition removes the status for that tax period and the next four.
- The tax rules require an audit at any revenue. Other companies need one above AED 50 million.
In this guide
What a Qualifying Free Zone Person is
A Free Zone Person is a company or a branch registered in a UAE free zone. It is a Qualifying Free Zone Person while it meets every condition of the corporate tax law, and then pays 0% on its qualifying income and 9% on the rest. There is no application. The Federal Tax Authority (FTA) treats a free-zone company as qualifying until a condition fails or the company elects out. The company claims the rate in its yearly return.
| Rule | Qualifying Free Zone Person | Any other company |
|---|---|---|
| Rate on qualifying income | 0% | No such category |
| Rate on other taxable income | 9% from the first dirham | 0% on the first AED 375,000, 9% above |
| Small Business Relief | No | Yes, with revenue up to AED 3 million |
| Tax group and transfer of losses | No | Yes |
| Audit under the tax rules | Every year | Above AED 50 million of revenue |
What the right-hand column has and the middle one lacks is the price of the 0% rate. Registration with the FTA is the same for every company: see corporate tax registration in the UAE.
The six conditions of the 0% rate
- Substance. The company carries out the core activities that earn the income in a free zone, with adequate assets, qualified full-time employees and operating expenditure.
- Qualifying income. The company earns income of the kinds set out in Cabinet Decision No. 100 of 2023.
- The 5% limit. Non-qualifying revenue stays within 5% of total revenue or AED 5 million, whichever is lower.
- Arm's length. Dealings with related parties are priced as between independent parties and backed by transfer pricing documentation.
- Audit. The financial statements are audited, whatever the revenue.
- No election. The company has not chosen the standard rates.
All six apply in every tax period. A condition missed at any time in a period removes the status from the first day of that period and for the next four.
What is qualifying income in the UAE?
The law sorts income by who the customer is and what is sold. A customer is either a Free Zone Person or it is not, and a foreign company counts with the mainland ones: selling abroad does not make income qualifying.
| Who pays | For what | Result |
|---|---|---|
| A free-zone company that uses the goods or service itself | Anything except an excluded activity | Qualifying, 0% |
| A free-zone company bound to supply the same thing to a third party | Anything | Non-qualifying |
| A mainland or foreign company | A listed qualifying activity | Qualifying, 0% |
| A mainland or foreign company | Any other activity | Non-qualifying |
| An individual | Almost anything | Non-qualifying |
| A free-zone company | Rent of commercial property in a free zone | Qualifying, 0% |
| Any customer | Sales through the company's mainland branch | Taxed at 9%, outside the 5% test |
| Any customer | Royalties from patents or copyrighted software | Qualifying in the share set by a formula |
Non-qualifying revenue is not taxed by itself. While it stays within the 5% limit it is treated as qualifying income and carries 0%. Past the limit the company loses the status, and all of its income moves to the standard rates.
In a sale to another free-zone company the buyer must be the beneficial recipient. That means it has the right to use the goods or service and no obligation to supply them to someone else. The FTA lets the seller rely on a written statement from the buyer, such as a clause in the contract, that it is the beneficial recipient and buys for its free-zone business. Put that clause into every contract with a free-zone client.
Qualifying activities and excluded activities
Income from customers outside the free zones qualifies for 13 activities and the work ancillary to them. They are listed in Ministerial Decision No. 229 of 2025, issued on 28 August 2025 and applied from 1 June 2023, which replaced Decision No. 265 of 2023.
| Qualifying activity | What the decision asks |
|---|---|
| Manufacturing and processing of goods or materials | Production, assembly, improvement or conversion into another product |
| Trading of qualifying commodities | Metals, minerals, industrial chemicals, energy, agricultural and environmental commodities with a quoted price |
| Holding of shares and other securities | Held for at least 12 months |
| Distribution of goods in or from a designated zone | Goods imported through the zone and sold to customers who resell or process them |
| Logistics services | Storage and transport of another person's goods, without taking title |
| Headquarter, treasury and financing services | For related parties; treasury also for the company's own account |
| Fund management, wealth and investment management | Under a UAE financial regulator |
| Reinsurance, ships, financing and leasing of aircraft | As the decision defines each of them |
Excluded activities earn non-qualifying revenue whoever the customer is: sales to individuals, banking, insurance, finance and leasing, and property other than commercial property in a free zone dealt with a free-zone company.
Consulting, marketing, software development, design and trading in goods outside a designated zone are not on the list. A company in these lines earns qualifying income from its free-zone clients and non-qualifying revenue from everyone else.
The de minimis test: 5% of revenue or AED 5 million, with a worked example
Add up the revenue of the tax period and the part of it that is non-qualifying. The test is passed when that part is no more than 5% of the total and no more than AED 5 million. The second limit begins to matter at AED 100 million of revenue. Revenue of a mainland or foreign branch is left out of both figures.
A free-zone software company has revenue of AED 4,000,000 in 2026: AED 3,700,000 from free-zone clients and AED 300,000 from clients on the mainland and abroad. Software development is not a listed activity, so the AED 300,000 is non-qualifying. It is 7.5% of the total: the test is failed, and the company is taxed at the standard rates from 2026 to 2030.
With AED 190,000 from outside clients in the same total, the share is 4.75%. The company keeps the status and pays 0% on the whole of its income.
The FTA's own example shows how strict the test is. A new company with no sales yet sells an office chair to an employee for AED 100. A sale to an individual is an excluded activity, the AED 100 is the whole revenue of the year, and the company is outside the regime for five tax periods.
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Is my free zone a qualifying free zone?
The law names no qualifying zones. The status belongs to the company: any company registered in an area that a Cabinet decision defines as a free zone is a Free Zone Person and can qualify. The FTA tells every taxpayer to confirm with its zone authority that the zone counts as a free zone, or a designated zone, for corporate tax. These zones say so on their own sites:
| Free zone | What the zone states |
|---|---|
| Meydan Free Zone, Dubai | It is a qualified free zone |
| DMCC, Dubai | 0% corporate tax on qualifying income, as the Cabinet decision defines it |
| DIFC, Dubai | A free zone for corporate tax purposes |
| RAKEZ, Ras Al Khaimah | 0% on qualifying income, and a designated zone inside it |
| Shams, Sharjah | 0% on qualifying income for a Qualifying Free Zone Person |
| Hamriyah Free Zone, Sharjah | A designated and a qualified free zone |
A designated zone is a free zone that is also on the VAT list of designated zones, set by Cabinet Decision No. 59 of 2017. For corporate tax it matters for one activity: the distribution of goods qualifies in or from a designated zone, with the goods imported through it. The zones and their fees are on free zone company setup in Dubai and the UAE, and the choice between them is in which free zone to choose in the UAE.
Substance, audit and transfer pricing
Substance means that the work which earns the income is done in the zone. Cabinet Decision No. 100 of 2023 asks for adequate assets, an adequate number of qualified full-time employees and adequate operating expenditure for each activity. It sets no figures: what is adequate follows the size of the business. The work may be outsourced to a provider in a free zone, as long as the company supervises it.
The audit has no threshold: a Qualifying Free Zone Person needs audited financial statements whatever it earns.
Prices in dealings with related companies and with owners follow the arm's length rule, and the company keeps the papers that prove it. Its own mainland branch counts as a separate related party: the branch's profit is worked out as if it were an independent company and taxed at 9%.
Losing the status, or giving it up
A company that fails a condition in 2026 is taxed at the standard rates from 1 January 2026 to the end of 2030. Meeting every condition in the years between changes nothing. It tests itself again for 2031.
For a small company the standard rates can cost less than the regime. Outside it the company has the 0% band up to AED 375,000 of taxable income. With revenue of AED 3 million or less it can also elect Small Business Relief and pay no tax, for tax periods ending by 31 December 2029.
A company may give the status up. The election for the standard rates is made during the tax period or in its return, up to the return's due date, and it holds for that period and the next four.
A free-zone consultancy with revenue of AED 2,400,000, a third of it from mainland clients, is outside the regime in any case. It elects Small Business Relief and pays no tax. Without the relief it would pay 9% on taxable income above AED 375,000. The relief is explained in Small Business Relief and the AED 3 million test.
How the 0% rate is claimed: the year, step by step
- From the first invoice: mark each sale as free-zone client, listed activity or other, and keep the buyer's statement with the contract.
- Each quarter: measure non-qualifying revenue against 5% of the total.
- Before the year ends: choose between the regime, the standard rates and Small Business Relief on the figures of the year.
- After the year end: have the financial statements audited.
- Within nine months of the year end: file the return as a Qualifying Free Zone Person and pay the tax on other income. For 2026 the date is 30 September 2027.
- For seven years: keep the contracts, the workings of the 5% test and the transfer pricing file.
We register the company with the FTA for corporate tax, test each condition before the return is filed, prepare the file behind the claim and submit the return. The rates and the dates for every company are in corporate tax in the UAE.
