What it means
A company registers in a UAE free zone and begins selling goods, but its licence and address do not establish that every dirham of profit is taxed at 0%. The company must test its activities, counterparties and legal conditions for each tax period.
Article 18 of the UAE corporate-tax law requires adequate substance in the State, Qualifying Income, no election into ordinary corporate-tax rates and compliance with transfer-pricing provisions, and ministerial decisions add conditions, including the de minimis test and audited financial statements. Qualifying Income is defined more precisely by Cabinet Decision No 100 of 2023: transactions with another free-zone person can qualify if the counterparty is the beneficial recipient and the activity is not excluded, while transactions with a non-free-zone person generally need a qualifying activity that is not excluded.
The qualifying-activities list is not a generic 'all trading' list, since Ministerial Decision No 229 of 2025 covers specified manufacturing, processing, logistics and other activities, with detailed conditions. It also identifies excluded activities, including many transactions with natural persons, subject to stated exceptions, and for tax periods starting in 2026, specified designated-zone distributors need an agreed-upon-procedures report under FTA Decision No 6 of 2026, with reseller and import evidence.
The de minimis test measures non-qualifying revenue, not taxable profit, and Ministerial Decision No 229 of 2025 sets the threshold at the lower of 5% of total revenue or AED 5 million for the tax period. Cabinet Decision No 100 of 2023 excludes some revenue categories from both numerator and denominator.
If total relevant revenue is AED 20 million, 5% is AED 1 million, so non-qualifying revenue of AED 800,000 may be within that numerical threshold, but it does not alone prove QFZP status because other conditions and the precise revenue classification still need verification. Transfer pricing matters even when related companies are both in the UAE, since Article 18 points to the arm's-length and documentation provisions.
Record how intra-group prices were set, rather than treating a free-zone invoice as automatically qualifying. Prepare audited financial statements as required by the applicable ministerial decision, and plan the audit before the filing deadline so revenue can be classified and supporting records retained.
A QFZP that fails a condition can lose that status from the start of the relevant tax period and for four subsequent periods under Ministerial Decision No 229 of 2025, which makes a late discovery more costly than the tax on one questionable sale. The business may elect ordinary corporate-tax treatment under Article 19, and the timing and effect should be modelled with an adviser before electing.
Small Business Relief is not available to a person while it is a QFZP, according to the FTA's relief guide, which discusses different treatment for a free-zone person that is not qualifying or has elected ordinary tax, subject to other relief conditions, so do not combine reliefs by assumption. For an owner, QFZP status is a period-by-period tax position supported by evidence.
Identify qualifying and non-qualifying revenue, maintain real operations and audited accounts, and review any new activity before relying on the 0% rate.
In practice
Real-world examples.
Example
A free-zone logistics business maps each service and counterparty to the current qualifying-activity rules before claiming 0% on relevant income. It keeps the mapping with its contracts and invoices. The file is ready for the audit.
Example
A trading business with AED 20 million relevant revenue tests whether AED 800,000 non-qualifying revenue is below the AED 1 million de minimis limit, then checks all other conditions. The ratio passes, but it also confirms its substance and audited accounts. Only then does it rely on the 0% rate.
Example
A designated-zone distributor arranges the 2026 agreed-upon-procedures work for its reseller and import evidence, rather than assuming an ordinary audit covers it. It briefs its auditors early in the year. The evidence is collected during the period, not after it.
Formula
Calculation
Illustrative de minimis ceiling = lower of 5% of relevant total revenue or AED 5 million. At AED 20 million relevant revenue, the ceiling is AED 1 million. Revenue exclusions and all other QFZP conditions must also be checked; this is not a tax-due formula.
Worked example. Two fictional free-zone companies are tested.
- Company A has AED 20 million of relevant revenue, so 5% = 0.05 x AED 20 million = AED 1 million, which is below AED 5 million, so the ceiling is AED 1 million. Non-qualifying revenue of AED 800,000 is 800,000 / 20,000,000 x 100 = 4%, inside the limit.
- Company B has AED 150 million of relevant revenue, so 5% = AED 7.5 million, but the absolute cap is AED 5 million, so the ceiling is the lower figure, AED 5 million.Case study
Seen in the real world.
This entirely fictional example concerns Oasis Trading FZE, an invented distributor. It planned direct consumer sales from a free-zone entity and assumed the sales would carry 0% corporate tax. Its adviser identified an excluded-activity and de minimis risk and examined the current designated-zone distribution rules. The company kept separate evidence for customers, imports and revenue classifications before deciding how to operate.
The story illustrates review, not a recommendation to restructure or a conclusion about an actual taxpayer's status. In the invented figures, consumer sales were expected to reach AED 2 million against AED 12 million of total relevant revenue, which is 2 / 12 x 100 = about 16.7% and well above the 5% ceiling of AED 600,000. That showed the plan could threaten the status for the year and the four periods after it, so Oasis chose to review its structure with the adviser before launching consumer sales.
Watch out
Common mistakes.
- Assuming registration in a free zone makes every income stream subject to 0% tax.
- Measuring the de minimis threshold against profit instead of the relevant revenue categories.
- Missing audited-statement, substance, transfer-pricing or applicable 2026 distribution-report requirements.
Questions
People also ask.
What is a QFZP?
It is a free-zone person meeting the corporate-tax conditions for 0% on Qualifying Income, with other income subject to the applicable rules.
What happens if conditions fail?
The current decision can remove status from the start of the failed tax period and for the next four periods.
Is small business relief available?
Not while it is a QFZP. Other free-zone persons may qualify under separate conditions; check current relief rules.
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