Passing the Qualifying Free Zone Person test is only half the job. The other half is proving that the income you actually earned is the kind that gets taxed at 0%. A company can hold full QFZP status and still pay 9% on a slice of its revenue, because the rate follows the income, not the licence.
TL;DR: A Qualifying Free Zone Person pays 0% only on Qualifying Income and 9% on everything else. Qualifying Income covers transactions with other free zone persons, a defined list of Qualifying Activities with mainland or foreign customers, and qualifying intellectual property. Non-qualifying revenue must stay under the lower of 5% of total revenue or AED 5 million, or you lose 0% status for five years.
What Is Qualifying Income in a UAE Free Zone?
Qualifying Income is the revenue a QFZP can tax at 0%. Under Cabinet Decision No. 100 of 2023, it falls into three buckets: income from transactions with other free zone persons (where that person is the beneficial recipient), income from a defined list of Qualifying Activities carried out with anyone, and income from qualifying intellectual property (Cabinet Decision No. 100 of 2023, 2023).
Anything outside those three buckets is non-qualifying and taxed at 9%. The standard 0% band on the first AED 375,000 of profit does not apply here. A QFZP gets 0% on qualifying income and 9% from the first dirham of non-qualifying income, with no small-profit cushion. We cover the underlying status conditions in our guide on whether your free zone business qualifies as a QFZP.
Which Activities Qualify for the 0% Rate?
Selling to another free zone person is qualifying by default, as long as they genuinely use the goods or services rather than passing them straight on. For sales to mainland or overseas customers, the income only qualifies if it sits on the official Qualifying Activities list set by Ministerial Decision No. 229 of 2025, which replaced the 2023 list but kept the same 1 June 2023 start date.
The Qualifying Activities are:
- Manufacturing and processing of goods or materials
- Trading of qualifying commodities
- Holding shares and other securities for investment
- Owning, managing and operating ships
- Reinsurance, fund management, wealth and investment management services
- Headquarter services and treasury and financing services to related parties
- Financing and leasing of aircraft
- Distribution of goods in or from a Designated Zone
- Logistics services, and any activity ancillary to the above
In our experience, the word that causes the most confusion is "ancillary." An activity only rides along at 0% if it genuinely supports a main qualifying activity and could not stand alone as a business in its own right.
Excluded Activities Never Produce Qualifying Income
Some activities are barred from the 0% rate no matter who the customer is, even another free zone person. Income from these Excluded Activities is taxed at 9% across the board. The excluded list under Ministerial Decision No. 229 of 2025 covers:
- Transactions with natural persons (with narrow exceptions for shipping, fund and aircraft activities)
- Regulated banking, insurance, finance and leasing activities
- Ownership or exploitation of immovable property, other than commercial property in a free zone sold or leased to another free zone person
- Ownership or exploitation of intellectual property that is not qualifying IP
One question clients always ask is whether selling to individuals breaks the regime. It does for that income. A free zone consultancy invoicing private individuals is earning excluded-activity income, and that revenue counts against the de minimis limit explained below. If most of your customers are individuals, read our note on UAE corporate tax for freelancers and sole proprietors first.
How Does the De Minimis Rule Work?
The de minimis rule lets a QFZP earn a small amount of non-qualifying income without losing 0% status. Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million in the tax period (Cabinet Decision No. 100 of 2023, 2023). Breach it and you lose QFZP status for that year and the following four tax years, with all income taxed at 9%.
Take a free zone trading company with AED 40 million of total revenue. Its 5% threshold is AED 2 million, which is lower than the AED 5 million cap, so AED 2 million is the limit that applies. If non-qualifying sales reach AED 2.4 million, the de minimis test fails and the whole company drops to 9% for five years. When we reviewed a client's revenue mix last year, a single recurring contract with a mainland customer outside the qualifying list was enough to put them within touching distance of that line.
Which Income Is Taxed at 9% but Does Not Break Your Status?
Some income is carved out of the de minimis test entirely. Revenue from a domestic permanent establishment, a foreign permanent establishment, or from immovable property in a free zone (other than qualifying commercial property) is always taxed at 9%, but it does not count toward the 5% or AED 5 million limit and will not cost you QFZP status.
This carve-out matters for planning. A free zone company that opens a mainland branch creates a domestic permanent establishment. That branch profit is taxed at 9%, yet the free zone operation keeps its 0% rate on qualifying income. The two are ring-fenced. If you are weighing a mainland presence, our comparison of mainland versus free zone setups walks through the trade-offs.
The 2025 Rules Widened What Qualifies
Ministerial Decision No. 229 of 2025, issued on 28 August 2025, widened several qualifying definitions. The Trading of Qualifying Commodities category now includes industrial chemicals, associated by-products, and environmental commodities such as carbon credits and renewable energy certificates, and it dropped the old requirement that commodities be in raw form (KPMG, 2025).
The decision also expanded qualifying commodity trading to cover structured commodity financing such as prepayment, factoring and warehouse receipt financing, and broadened Designated Zone distribution to allow sales to processors and public benefit entities. Cabinet Decision No. 100 of 2023 still governs Qualifying Income itself, so the three income buckets above are unchanged. For the wider filing picture once you have classified your income, see our guide to your first UAE corporate tax return.
Frequently Asked Questions
Does a Qualifying Free Zone Person get the AED 375,000 0% band?
No. The 0% band on the first AED 375,000 of taxable income applies to the standard corporate tax regime, not to QFZPs. A QFZP pays 0% on qualifying income and 9% on non-qualifying income from the first dirham, with no separate small-profit threshold on the 9% portion.
What is the beneficial recipient rule for free zone transactions?
For income from another free zone person to qualify, that person must be the beneficial recipient, meaning they have the right to use and enjoy the goods or services. If they are simply an intermediary passing the supply on to a mainland or natural-person customer, the income may not qualify.
Can a free zone company elect to pay 9% instead?
Yes. A free zone person can choose not to be treated as a QFZP. That election applies for the tax period and the following four tax periods, so it is not a year-by-year switch and should be modelled before you commit.
Is rental income from free zone property qualifying?
Only commercial property located in a free zone, leased or sold to another free zone person, can produce qualifying income. Income from any other immovable property is taxed at 9% and sits outside the de minimis calculation.
Do QFZPs still have to register and file?
Yes. Every free zone person must register for corporate tax and file a return within nine months of the end of the tax period, even where all income is taxed at 0%. QFZPs also have to prepare audited financial statements.
Not sure which slice of your free zone revenue actually qualifies for 0%? Get in touch and we will map your income streams against the Qualifying Activities list, run your de minimis position, and flag anything quietly dropping into the 9% band before it costs you your status.