Qualifying Free Zone Person explained

Last verified: 2026-10-06

Summary

Under UAE corporate tax, a Qualifying Free Zone Person can benefit from a 0% corporate tax rate on its Qualifying Income. Other income is taxed at the standard rate. This guide summarises the Federal Tax Authority’s (FTA) Basic Tax Information bulletin on Free Zone Persons and related FTA pages.

Free Zone Person versus Qualifying Free Zone Person

The FTA bulletin defines a Free Zone Person as a juridical person incorporated, established or otherwise registered in a Free Zone. This includes the relevant Free Zone authorities and certain Government Controlled Entities established in a Free Zone. A registered branch in a Free Zone can also be a Free Zone Person. A natural person or an Unincorporated Partnership cannot be one.

A Free Zone for corporate tax purposes is a designated geographic area specified in a Cabinet decision. The FTA says taxable persons should check with their Free Zone Authority whether they operate in a Free Zone or Designated Zone for corporate tax purposes.

A Free Zone Person is deemed to be a Qualifying Free Zone Person unless it fails one of the conditions or elects to be subject to the standard corporate tax rules and rates.

The conditions

According to the FTA bulletin, a Free Zone Person must:

Maintain adequate substance in a Free Zone.
Derive Qualifying Income.
Not have elected to be subject to the standard corporate tax rate.
Comply with the arm’s length principle for transactions with Related Parties, and for arrangements between the Free Zone parent and its Foreign or Domestic Permanent Establishments.
Maintain Transfer Pricing documentation.
Maintain audited Financial Statements.
Keep non-qualifying Revenue within the de minimis requirement: not more than the lower of AED 5 million or 5% of total Revenue.

Rates

As of 2026-10-06, the FTA bulletin states that a Qualifying Free Zone Person benefits from a 0% rate on Qualifying Income, and that other income that is not Qualifying Income is subject to the standard 9% rate. It also states that a Qualifying Free Zone Person is not eligible for the 0% rate on Taxable Income up to AED 375,000 and is subject to 9% on its entire Taxable Income that is not Qualifying Income.

What counts as Qualifying Income

The bulletin lists income from:

Transactions with other Free Zone Persons, where those persons are the Beneficial Recipient and the transactions do not relate to Excluded Activities.
Transactions relating to Qualifying Activities that are not Excluded Activities.
Ownership or exploitation of Qualifying Intellectual Property.
Other income, provided the de minimis requirements are met.

Qualifying Activities named by the FTA include manufacturing and processing of goods or materials, trading of Qualifying Commodities, holding of shares and securities for investment purposes, ownership, management and operation of Ships, reinsurance, fund management, wealth and investment management, headquarter services and treasury and financing services to Related Parties, financing and leasing of Aircraft, distribution in or from a Designated Zone, and logistics services.

Excluded Activities include transactions with natural persons (with listed exceptions), banking, insurance other than reinsurance, finance and leasing other than listed exceptions, and ownership or exploitation of Immovable Property other than certain Commercial Property in a Free Zone. Income attributable to Permanent Establishments is also not Qualifying Income.

If a condition is not met

The bulletin states that a Qualifying Free Zone Person that elects standard treatment, or fails a condition, ceases to be one from the beginning of that Tax Period and for the four subsequent Tax Periods.

Compliance requirements

The bulletin states that a Free Zone Person, including a Qualifying Free Zone Person:

Should register for corporate tax with the FTA within the timelines set in FTA Decision No. 3 of 2024.
Must file its Tax Return and pay any tax within nine months from the end of the Tax Period.
Must keep records for seven years after the end of the relevant Tax Period.

A Qualifying Free Zone Person must also keep audited Financial Statements even if its Revenue is below AED 50 million. The FTA’s Small Business Relief page states that Qualifying Free Zone Persons cannot benefit from that relief.

What it costs

Licence, visa and set-up costs vary by free zone and activity; use the comparison tool on this site for them. The corporate tax position depends on income type and the conditions above, and this guide does not estimate it. Audited statements and Transfer Pricing documentation are conditions, so they create ongoing preparation work.

Common pitfalls

Assuming that registration in a Free Zone is enough. The FTA lists seven conditions, all of which must be met.
Treating all income as 0%. Only Qualifying Income benefits; other income is taxed at 9%.
Overlooking the de minimis limit on non-qualifying Revenue.
Forgetting the consequence period. Failing a condition affects the Tax Period concerned and the four after it.
Skipping registration. Free Zone Persons, including Qualifying Free Zone Persons, register with the FTA.

Check the authority

Rules, activity lists and Free Zone designations change, and individual cases differ. Check the Federal Tax Authority (tax.gov.ae) and your Free Zone Authority for the current position.

Figures and details in this guide are as stated on the cited official pages as of 6 October 2026.

Sources

This information is general; rules and fees can change. Check current details with the relevant authority.

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