A free zone licence does not give you 0% corporate tax. The honest version is narrower: every UAE business, free zone or mainland, pays 0% on the first AED 375,000 of taxable profit and 9% above it. The 0% you have heard about applies only to qualifying income earned by a Qualifying Free Zone Person — a separate status, with conditions, that most free zone companies do not meet. If you are moving a real business to the UAE, it is worth understanding the difference before you pick a licence, not after your first tax return.

Two layers, not one

UAE corporate tax has two layers, and the 0% headline lives in the second one.

The first layer is the default that everyone is on. Mainland, free zone, foreign-owned, family-owned — the same rule applies: nothing on the first AED 375,000 of taxable profit, 9% on the rest. A free zone licence does not change this. This is confirmed current as of June 2026.

The second layer is the Qualifying Free Zone Person regime. It sits on top of the default and offers 0% on a defined slice of income, with no AED 375,000 cap. It is optional, conditional, and a lot narrower than the marketing suggests. Most free zone companies are not Qualifying Free Zone Persons. They are free zone companies paying the standard 0% / 9% rate, the same as a mainland company of the same size.

That is the whole misunderstanding in one sentence: “free zone” and “qualifying free zone” are not the same thing. Read more on the wider picture on our UAE corporate tax page.

What a Qualifying Free Zone Person has to do

To get 0% on qualifying income, a company has to meet all of the following at the same time. Miss one and the status falls away.

• Be incorporated, established or registered in a UAE free zone.
• Keep adequate substance in the UAE — real activity, real people, real decisions taken in the free zone. Not a paper shell.
• Earn qualifying income, as defined in the legal sources.
• Meet arm’s-length and transfer-pricing rules under the Corporate Tax Law.
• Prepare audited financial statements (Ministerial Decision No. 84 of 2025).
• Keep non-qualifying revenue inside the de minimis limit.
• Not have elected to be taxed under the standard regime instead.

The word “all” matters. Every condition has to hold. A single weak point — substance, audit, transfer pricing, de minimis — collapses the regime. And the penalty is structural, not a fine: lose the status and you lose it for that tax period and the next four after it.

What counts as qualifying income

Ministerial Decision No. 229 of 2025 lists the activities that qualify. In short, they are: manufacturing and processing of goods; trading of qualifying commodities; holding shares and securities for investment (held at least twelve months); owning and operating ships in international transport; reinsurance; regulated fund management; regulated wealth and investment management; headquarter services to related parties; treasury and financing services to related parties or for the company’s own account; aircraft financing and leasing; distribution of goods in or from a Designated Zone; logistics; and activities ancillary to any of those.

Two things to hold onto. The list is closed — if your activity is not on it and not genuinely ancillary to something on it, it is not qualifying income, however it is invoiced. And “ancillary” has a defined meaning: necessary for the main activity or a minor part of it, not a separate business in its own right.

There is also a list of excluded activities that produce non-qualifying income even inside a free zone — chiefly transactions with individuals (with narrow exceptions for ships, fund management, wealth management and aircraft financing), banking, most insurance, most finance and leasing, and ownership of property other than commercial property inside a free zone let to another free zone person. This is where businesses selling to UAE consumers tend to get caught.

The de minimis rule

A QFZP is allowed a little non-qualifying revenue without losing status. The limit is whichever is lower of:

• 5% of total revenue, or
• AED 5,000,000.

The AED 5m figure is a ceiling, not the limit. For a smaller business the limit is lower. Take a free zone trader with AED 40 million of revenue: 5% is AED 2 million, which is below the AED 5 million ceiling, so its de minimis limit is AED 2 million. If non-qualifying revenue — say sales to individuals in the UAE — passes AED 2 million in the period, the status is gone.

And the de minimis test does not turn that slip into qualifying income. It only stops a small amount of non-qualifying revenue from killing the status. The non-qualifying revenue itself is still taxed at 9%.

Substance is the part people underestimate

The most common failure we see is not the activity definition. It is substance. A QFZP needs real presence in the UAE free zone — premises, people, decisions made there. The audited-accounts requirement under Ministerial Decision No. 84 of 2025 puts a documentary layer on top of that: a third party signs the accounts, so the substance has to genuinely exist to stand up to an audit.

An owner who sets up under a desk-only arrangement and runs the company from home in London or Sydney is in a difficult spot. The licence test might pass. Substance, management and control, and the audit are where it comes apart.

A worked example: a consultancy in a Dubai free zone

An owner sets up a consultancy in a Dubai free zone and, in a tax period, invoices AED 1.2 million: AED 1,050,000 to UK and European corporate clients for management and strategy work, AED 100,000 to a UAE mainland company, and AED 50,000 to an individual in the UAE.

General management consulting is not on the qualifying list. It is not manufacturing, not headquarter or treasury services to a related party, not fund or wealth management, not ancillary to any of them. So none of the AED 1.05 million from foreign clients is qualifying income — even though it is foreign-sourced. The AED 100,000 from the mainland company is non-qualifying for the same reason. The AED 50,000 to an individual is caught by the transactions-with-individuals exclusion.

This company is a free zone company, not a Qualifying Free Zone Person. The 0% headline does not apply. The outcome is the standard one: 0% on the first AED 375,000 of taxable profit, 9% above. The same as a mainland company of that size.

That is not a failure. For a lot of consultancy, agency and operator businesses the standard regime is simply the regime, and the work is to plan around it properly. The free zone still earns its place for other reasons — ownership flexibility, UAE residency, banking access, a stable base to trade from. Where the QFZP regime genuinely fits — manufacturing, qualifying commodity trading, regulated fund or wealth management, a real group treasury or headquarter function — it has to be designed for from the start, not bolted on later.

What the 2025 update changed

Ministerial Decision No. 229 of 2025 replaced the earlier 2023 decision, with effect back to 1 June 2023, and rewrote three of the qualifying activities. Commodity trading moved from a “raw form” test to a clearer market-referenced one: if the commodity has a quoted price on a recognised exchange or price reporting agency, it is in scope, and the list now covers industrial chemicals, agricultural by-products and environmental commodities such as carbon credits. Treasury and financing now expressly includes the company’s own account, so interest on the company’s own deposits can sit inside the qualifying activity. And distribution from a Designated Zone was extended to cover supplies to public benefit entities. The audit condition was aligned with Ministerial Decision No. 84 of 2025.

How we handle this with clients

We start from the activity, not the licence. Before recommending a free zone or a licence category we look at what the business actually does, who the customers are, and whether the activity falls inside the qualifying list. If it does, the conversation moves to substance, banking and audit. If it doesn’t, we plan around the standard 9% / 0% regime properly rather than promise a 0% outcome the activity will never deliver. We handle the corporate tax side in-house, so this is the same team that runs the accounts, not a hand-off.

The same discipline we apply to opening the bank account applies here. We speak to the bank about the company before it is set up, and banks now pay close attention to a company’s corporate tax classification, because a misclassification creates exposure for them too. A clean structure the bank can read at face value is part of getting and keeping the account. In this environment the boring answers — proper structure, real substance, audited accounts, conservative activity classification — are the ones that hold up.

None of this is formal tax advice; it is the practical picture, and how the rules read at the time of writing. The text itself is published in English by the UAE Ministry of Finance, and the Federal Tax Authority publishes practitioner guides — both are the primary sources behind this article. If you want to talk through where your business sits, speak to us.

Common questions

What is qualifying free zone income?

It is the income a Qualifying Free Zone Person earns from activities listed as qualifying under Ministerial Decision No. 229 of 2025, subject to the company meeting all other QFZP conditions in Article 18 of Federal Decree-Law No. 47 of 2022. This income is taxed at 0%.

Is every free zone company a Qualifying Free Zone Person?

No. QFZP is a separate status that requires meeting a defined set of conditions. A free zone company that does not meet them is taxed at the standard 0% / 9% rate (as of May 2026).

What corporate tax rate applies to a QFZP?

0% on qualifying income; 9% on non-qualifying taxable income (as of May 2026).

What happens if a QFZP fails the de minimis test?

The company ceases to be a QFZP from the start of that tax period and for the four following tax periods. All income in those years is then taxed under the standard regime — 0% on the first AED 375,000 of taxable income and 9% above.

Is the AED 5,000,000 de minimis limit absolute?

No. It is a ceiling. The actual limit is the lower of 5% of total revenue or AED 5 million. A smaller business has a smaller limit.

Is selling to UAE consumers from a free zone licence qualifying income?

Generally not. Transactions with natural persons are excluded activities, with narrow exceptions for ship operations, fund management, wealth management and aircraft financing.

Does the QFZP regime apply to mainland companies?

No. The regime is specific to free zone persons. Mainland companies are taxed at the standard 0% / 9% rate.

What is a Designated Zone?

A subset of free zones specifically designated under Cabinet Decision No. 59 of 2017 (and subsequent amendments) for certain VAT and corporate tax purposes. Distribution as a qualifying activity has to be conducted in or from a Designated Zone. Not every free zone is a Designated Zone.

Are audited accounts compulsory for a QFZP?

Yes. Ministerial Decision No. 84 of 2025 requires audited financial statements for any company claiming QFZP status, regardless of revenue.

What was changed by Ministerial Decision No. 229 of 2025?

It repealed Ministerial Decision No. 265 of 2023 and rewrote three qualifying activities: trading of qualifying commodities (new quoted-price test), treasury and financing services (now expressly includes the company's own account), and distribution in or from a Designated Zone (now extends to supplies to public benefit entities). It also aligned the audit condition with Ministerial Decision No. 84 of 2025.

Can a QFZP also use Small Business Relief?

No. Small Business Relief and QFZP status are alternatives — a taxpayer elects one regime or the other.

Where can I read the rules myself?

The UAE Ministry of Finance publishes the cabinet and ministerial decisions in English on mof.gov.ae. The Federal Tax Authority publishes practitioner-facing guides at tax.gov.ae. Both are the primary sources behind this article.