Qualifying Free Zone Person (QFZP)

A free zone company that meets the conditions to be taxed at 0% on its qualifying income. The conditions include adequate substance in the free zone, deriving qualifying income from prescribed activities, keeping non-qualifying revenue within a de minimis threshold, and meeting transfer pricing requirements. Failing any of them moves the whole company to the standard rate.

Where it comes up

QFZP status is what lets a free zone company reach 0% corporate tax on qualifying income. It is not conferred by the address — it is a set of conditions tested every year, and failing any one of them moves the whole company to the standard rate.

What it costs

No fee. The cost of losing it is that 9% applies to all income, not just the failing part, and the status is generally barred for several subsequent years.

Who it applies to

Free zone companies intending to claim the 0% rate. Registration with the Federal Tax Authority is required regardless.

How it actually goes

1. Be a free zone personIncorporated in a designated free zone. Mainland companies cannot qualify, and neither can a free zone branch operating onshore.
2. Hold adequate substanceCore income-generating activities carried out in the zone, with people, assets and expenditure proportionate to what the company does.
3. Earn qualifying incomeIncome from transactions with other free zone persons, and from a defined list of qualifying activities. Income from the mainland or from non-qualifying activities is not.
4. Stay inside de minimisNon-qualifying revenue must stay under the lower of 5% of total revenue or AED 5 million. Breach it and status is lost.
5. Keep the paperworkAudited financial statements and transfer-pricing documentation are conditions, not formalities.

Losing qualifying status is not a one-year problem. The company is disqualified for that tax period and the four that follow, at 9% throughout. This is the single most consequential compliance threshold in the UAE tax system.

In short

• A status tested annually, not granted once
• Failing a test moves all income to 9%, not just the failing part
• Losing the status generally bars it for several subsequent years

Where this leads

Back to the glossary