A UAE Free Zone company does not automatically get a 0% Corporate Tax rate. The 0% rate is available only when the company qualifies as a Qualifying Free Zone Person (QFZP) and meets the required conditions.
QFZP Requirements at a Glance
To maintain QFZP status, a Free Zone company generally needs to:
Adequate Substance
Maintain real business activity and suitable resources in the UAE.
Qualifying Income
Earn income from qualifying activities or transactions with Free Zone Persons.
De Minimis Limit
Keep non-qualifying revenue below 5% of total revenue or AED 5 million.
Transfer Pricing
Follow arm's-length rules and maintain proper documentation.
Audited Statements
Prepare and maintain audited financial statements (from 1 Jan 2025).
No Standard Tax Election
Do not elect to be taxed under the standard Corporate Tax regime.
1. Maintain Adequate Substance in the UAE
Your Free Zone company should have real business activity and suitable resources in the UAE for the income it earns.
Depending on the business, this can include:
- Employees or suitable personnel
- Operating expenses
- Physical facilities
- Business activity carried out in the UAE
Important: A Free Zone licence alone does not prove that the company has adequate substance.
2. Earn Qualifying Income
The type of income matters. Under the current rules, Qualifying Income can include income from transactions with Free Zone Persons, subject to the rules, and income from specified Qualifying Activities with Non-Free Zone Persons.
The current list of Qualifying Activities is set by Ministerial Decision No. 229 of 2025, which replaced the earlier Decision No. 265 of 2023. The updated rules cover activities such as manufacturing, processing, qualifying commodity trading, certain financial services, distribution in or from a Designated Zone and logistics services.
3. Stay Within the De Minimis Limit
A QFZP can have a limited amount of non-qualifying revenue and still meet the de minimis test. The limit is the lower of:
- 5% of total Revenue
- AED 5 million
This test is important because exceeding the applicable limit can affect QFZP status.
Simple Example: If your company's total Revenue is AED 10 million:
5% = AED 500,000
So, the relevant de minimis limit would be AED 500,000, not AED 5 million.
4. Follow Transfer Pricing Rules
Free Zone companies must comply with the UAE transfer pricing rules where applicable. This is especially important when dealing with Related Parties or connected entities.
Keep proper:
- Related-party agreements
- Transaction records
- Pricing support
- Transfer pricing documentation, where required
For a wider review of records, see our Corporate Tax Audit Checklist UAE.
5. Do Not Elect for Standard Corporate Tax Treatment
A Free Zone company may choose to be subject to the standard Corporate Tax regime instead of maintaining QFZP treatment. Therefore, the company should review its tax position before making such an election.
6. Keep Proper Accounting Records
Free Zone status does not mean you can skip tax records. Keep records supporting:
Our UAE FTA Tax Audit Red Flags guide explains common record and compliance problems that can create audit risk.
7. QFZP Audit Requirement
There is an important point many Free Zone businesses miss.
Under Ministerial Decision No. 84 of 2025, a QFZP is required to prepare and maintain audited financial statements for Corporate Tax purposes for tax periods beginning on or after 1 January 2025.
See our updated guide on UAE Audit Requirements 2026 for the wider audit rules.
For businesses in specific Free Zones, separate authority requirements may also apply. For example, see our IFZA Mandatory Audit Requirements 2026 guide.
Does Every Free Zone Company Need Corporate Tax Registration?
Yes. A Free Zone company does not avoid Corporate Tax registration simply because it may qualify for the 0% QFZP rate. Free Zone entities are required to register and file a Corporate Tax return, whether or not they qualify for QFZP treatment.
Read our guide: Corporate Tax Registration UAE: Do You Need to Register Below AED 3M?
Free Zone Corporate Tax Checklist
Before claiming 0% Corporate Tax, check:
| Requirement | Check |
|---|---|
| Free Zone status | ✅ |
| Adequate UAE substance | ✅ |
| Qualifying Income | ✅ |
| Qualifying Activities | ✅ |
| De minimis test | ✅ |
| Transfer pricing compliance | ✅ |
| No standard-tax election | ✅ |
| Proper accounting records | ✅ |
| Audited financial statements where required | ✅ |
| Corporate Tax registration and filing | ✅ |
The Key Point
Free Zone does not mean automatic tax exemption. Your company must continuously meet the QFZP conditions to benefit from the 0% Corporate Tax rate on Qualifying Income. The rules also depend on the nature of your activities and income, so simply having a Free Zone licence is not enough.
For a broader review, see our Corporate Tax Audit Requirements in UAE guide or ISA Compliant Audit UAE.
Need Help with Your Free Zone Tax Position?
Our team can review your QFZP status, qualifying income calculations, transfer pricing documentation, and audit readiness.
Office No. 207, Saheel Tower 1, Al Nahda First, Dubai, UAE
