UAE Free Zone Corporate Tax 2026: The 0% QFZP Rules

By Harib Nadim · Founder, CalcUAE · Updated 21 July 2026

A free-zone licence and the 0% corporate tax rate are not the same thing. The rate applies to Qualifying Income earned by a Qualifying Free Zone Person (QFZP). Other taxable income of a QFZP is generally taxed at 9% without the ordinary AED 375,000 band. If a QFZP condition fails, the company moves to the standard corporate tax regime for the current period and the next four periods.

Every rule here is drawn from primary law: Federal Decree-Law No. 47 of 2022 (Articles 18 and 19), Cabinet Decision No. 100 of 2023, Ministerial Decision No. 229 of 2025 (which replaced No. 265 of 2023), and Ministerial Decision No. 84 of 2025. Run your own numbers against it with the free UAE Corporate Tax Calculator.

Quick answer: 0% is conditional, not automatic

Note the trap in row three: for a QFZP, there is no AED 375,000 tax-free band. Non-qualifying income is taxed at 9% from the first dirham. The AED 375,000 threshold and Small Business Relief belong to the standard regime, not the free zone 0% regime.

The QFZP conditions: all of them, or none of the 0%

To be a Qualifying Free Zone Person for a tax period, you must satisfy every one of these. They are not a menu.

1. Be a Free Zone Person — a juridical person (company or branch) incorporated, established, or registered in a UAE free zone.
2. Maintain adequate substance in the free zone — your core income-generating activities happen in the zone, with enough employees, assets, and operating expenditure to back them. You may outsource to a related party or a third party inside a free zone, but only under your adequate supervision.
3. Derive qualifying income — as defined below.
4. Not have elected to be taxed under the standard 9% regime.
5. Comply with the arm's length principle and transfer pricing rules, and keep transfer pricing documentation for related-party transactions (Article 34 and Article 55).
6. Stay within the de minimis limit on non-qualifying revenue.
7. Prepare audited financial statements under IFRS. Under Ministerial Decision No. 84 of 2025 this is mandatory for every QFZP, regardless of revenue size.

Condition 7 is where many small free zone companies get caught: audited accounts are not optional above some threshold, they are a precondition of the 0% rate itself. If you need them, our external audit service issues an IFRS-compliant, signed report.

What counts as "qualifying income"

Qualifying income (taxed at 0%) falls into these categories:

• Income from transactions with other Free Zone Persons, where they are the beneficial recipient, except income from an excluded activity.
• Income from qualifying activities transacted with anyone (including non-free-zone and foreign customers), except income from an excluded activity.
• Qualifying intellectual property income, but only up to the portion allowed by the OECD modified nexus approach. Marketing-type IP such as trademarks does not qualify.
• Other income remains non-qualifying, but a limited amount of non-qualifying revenue can be earned without disqualifying the company under the de minimis rule.

Qualifying vs excluded activities (Ministerial Decision 229 of 2025)

A critical detail for traders: goods distribution only qualifies when it is carried out in or from a Designated Zone — a specific, customs-gazetted subset of free zones. Check the exact premises against the current official list rather than assuming the whole free-zone authority has the same status. The VAT designated-zones guide explains the separate VAT concept.

New 2026 report for designated-zone distributors

FTA Decision No. 6 of 2026 adds procedures for a QFZP relying on the qualifying activity of distributing goods or materials in or from a Designated Zone. It applies to tax periods starting on or after 1 January 2026.

The distributor must obtain an agreed-upon procedures report from an independent UAE-licensed external auditor under ISRS 4400. The work tests, among other things, whether customers are resellers and whether goods imported by the QFZP entered the UAE through a Designated Zone.

The business needs evidence such as customer licences or declarations, sales agreements and invoices, customs declarations, bills of lading and internal inventory or goods-movement records. The report is due to the FTA no later than 30 days after the corporate tax return deadline for the period, unless the FTA specifies another date. Failure to submit it means the relevant distribution and audit conditions are not treated as met.

The de minimis rule (and a worked example)

You are allowed some non-qualifying income without losing QFZP status. The de minimis limit is:

Non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of total revenue.

Because it is the lower of the two, the 5% cap usually binds first for smaller companies. A worked example:

• A DMCC trading company has total revenue of AED 8,000,000.
• 5% of AED 8,000,000 = AED 400,000. AED 5,000,000 is higher, so the limit is AED 400,000.
• If its non-qualifying revenue (say, some sales to UAE mainland customers that are not a qualifying activity) is AED 350,000, it is under the limit — QFZP status holds, and only that AED 350,000 is taxed at 9%.
• If non-qualifying revenue were AED 450,000, it would breach the de minimis limit and the company would cease to be a QFZP for that period. The standard regime would then apply to its taxable income; the AED 8,000,000 revenue figure is not itself the tax base.

The result can change once the limit is crossed, so qualifying and non-qualifying revenue should be tracked during the year rather than reconstructed after year-end.

What happens if you fail: the five-year lockout

Failing a condition—such as the de minimis, substance, audit or transfer-pricing requirements—can disqualify the company as a QFZP for:

• the current tax period, and
• the following four tax periods.

For those periods the company is taxed under the standard regime, including the ordinary 0% band on taxable income up to AED 375,000 and 9% above it, where applicable. A company with AED 2,000,000 of taxable income and no other adjustments would have a standard-rate liability of AED 146,250 for one period. Future periods must be calculated from their own taxable income.

Common mistakes that cost the 0%

• Assuming the licence is enough. The zone gives you the option of 0%; your compliance earns it.
• Selling to UAE mainland customers and treating it as qualifying. Sales to non-free-zone persons only qualify if the activity itself is a qualifying activity.
• Distributing goods from a non-Designated Zone. Distribution income only qualifies from a Designated Zone.
• Skipping the audit. Audited financial statements are a QFZP condition.
• Ignoring transfer pricing on related-party and head-office transactions.
• Forgetting registration and filing. A QFZP still must register for corporate tax and file an annual return, even at 0%. Late filing also carries its own administrative penalty.
• Missing the distributor report. For relevant periods from 2026, the agreed-upon procedures report is a separate submission after the return.

Do you qualify? A quick decision path

1. Are you a juridical person (company/branch) in a UAE free zone? If no → test the standard corporate tax rules.
2. Do you have adequate substance for the activities? If no → QFZP treatment is at risk.
3. Is your income from qualifying activities, or from other Free Zone Persons? Map each revenue stream.
4. Is your non-qualifying revenue within the lower of AED 5M or 5% of total? If no → the standard regime may apply for five periods.
5. Do you have audited IFRS accounts and the required transfer-pricing support? If no → the conditions are not complete.
6. If you distribute goods in or from a Designated Zone, have you arranged the 2026 agreed-upon procedures report and evidence?
7. All conditions met → 0% on qualifying income, with other taxable income dealt with under the QFZP rules.

Estimate the 9% exposure on any non-qualifying income with the UAE Corporate Tax Calculator, and if you are weighing a zone against the mainland, read Free Zone vs Mainland 2026.

Frequently Asked Questions

Do free zone companies pay corporate tax in the UAE?

A free zone company pays 0% on its qualifying income and 9% on any non-qualifying income, provided it meets all the Qualifying Free Zone Person conditions. A free zone licence alone does not exempt you — the 0% depends on qualifying income, adequate substance, audited accounts, transfer pricing compliance, and staying within the de minimis limit.

What is a Qualifying Free Zone Person (QFZP)?

A QFZP is a free zone company or branch that meets all the conditions in Article 18 of Federal Decree-Law No. 47 of 2022 and its Cabinet and Ministerial Decisions, and therefore qualifies for the 0% corporate tax rate on qualifying income. Failing any single condition removes QFZP status.

Does the AED 375,000 tax-free threshold apply to free zone companies?

No. For a QFZP, non-qualifying income is taxed at 9% from the first dirham — the AED 375,000 0% band and Small Business Relief apply to the standard regime, not the free zone 0% regime.

What is the de minimis rule for QFZP?

Non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of total revenue. Breaching the limit can cause the loss of QFZP status, after which the standard corporate tax regime applies for the disqualification period.

Do free zone companies need audited financial statements?

Yes. Under Ministerial Decision No. 84 of 2025, every QFZP must prepare audited financial statements under IFRS for all tax periods from 1 June 2023 onward, regardless of revenue. Without them you cannot claim the 0% rate.

What happens if a free zone company loses QFZP status?

It is treated under the standard corporate tax regime for the current tax period and the following four tax periods. The standard 0% and 9% bands apply to taxable income where their conditions are met. It can retest QFZP status after that disqualification period.

Which free zones qualify for 0% corporate tax?

Any UAE free zone can host a QFZP — the 0% depends on the company meeting the conditions, not on which zone it is in. However, some activities (notably goods distribution) only qualify when conducted in or from a Designated Zone, which is a customs-gazetted subset of free zones.

Next steps

• Estimate the 9% exposure on any non-qualifying income: UAE Corporate Tax Calculator
• Meet the audited-accounts condition: UAE External Audit service
• Register (mandatory even at 0%): UAE Corporate Tax Registration 2026 guide
• File your return: How to file Corporate Tax on EmaraTax
• Know how long to keep records: UAE tax record-keeping requirements
• Compare structures: Free Zone vs Mainland 2026
• Pick a zone: UAE free zones directory

Sources

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Articles 18 and 19)
• Cabinet Decision No. 100 of 2023 on Qualifying Income
• Ministerial Decision No. 229 of 2025 (Qualifying and Excluded Activities), replacing Ministerial Decision No. 265 of 2023, effective from 1 June 2023
• Ministerial Decision No. 84 of 2025 on the requirement to prepare audited financial statements
• FTA Decision No. 6 of 2026 on additional procedures for designated-zone distributors
• Federal Tax Authority — Free Zone Persons Corporate Tax Guide: tax.gov.ae

Related tools:

• UAE Corporate Tax Calculator — estimate 9% liability on non-qualifying income
• UAE FTA Penalty Calculator — see the cost of late registration or filing
• UAE free zones directory — compare zones, costs, and Designated Zone status