0% is conditional, not automatic
Free Zone Corporate Tax & QFZP Services
A Qualifying Free Zone Person pays 0% on qualifying income — but the status is tested every year against substance, activity and transfer-pricing conditions, not granted once at incorporation and assumed to continue indefinitely.
QFZP status is re-tested annually — a status held last year isn't guaranteed this year
Key facts
| Qualifying income rate | 0% |
| Non-qualifying income rate | 9%, the same standard rate that applies to mainland companies above the threshold |
| Testing frequency | Annual — not a one-time determination at formation |
| Key conditions | Adequate substance, qualifying activity, de minimis threshold, transfer pricing compliance |
What this actually involves
Qualifying Free Zone Person status is the mechanism that lets an eligible free zone entity pay 0% corporate tax on its qualifying income, rather than the standard 0%/9% bands that apply to mainland companies and non-qualifying free zone income alike. It's genuinely valuable when it applies — and genuinely conditional in a way that catches businesses who treat it as a permanent feature of their free zone licence rather than an annually tested status.
The three conditions that most commonly fail on review are substance that doesn't match the claimed activity level (a registered address with minimal actual staff or operational presence relative to claimed income), excluded activities exceeding the permitted de minimis threshold (a small amount of non-qualifying income is tolerated, but exceeding the threshold can affect the whole qualifying income position), and undocumented related-party transactions that don't meet arm's-length transfer pricing standards.
Free zones vary in how strictly they expect this demonstrated — some authorities require audited financials specifically to evidence QFZP substance, and grouping decisions or intercompany restructuring can inadvertently affect a previously secure qualifying position. None of this is set-and-forget; it needs annual review against your actual, current operating reality.
Is this actually relevant to you?
- You're a free zone entity currently claiming, or considering claiming, 0% corporate tax as a Qualifying Free Zone Person
- You've held QFZP status in prior periods and want confirmation it still holds given any changes to your operations or group structure
- You're planning intercompany transactions or a group restructuring and want the QFZP impact assessed beforehand
- You're not certain whether your current substance level genuinely matches what your claimed qualifying income requires
Our process, step by step
Annual QFZP testing
Substance, activity and de minimis review performed before, not after, your return is filed.
Qualifying income classification
Determining which specific income streams genuinely qualify under the defined categories.
Remediation planning
Where a condition is at risk of failing, planning to correct it before the testing period closes, not after an FTA finding.
Scope of work
Qualifying status depends on substance, qualifying income and audited accounts, so it ties closely to your free zone audit, transfer pricing documentation and the annual corporate tax return.
The three conditions that most often don't hold up
- Substance that looks adequate on paper (a registered address, a nominal staff presence) but doesn't genuinely match the scale of claimed qualifying income.
- Non-qualifying or excluded activity income creeping above the permitted de minimis threshold without anyone tracking the running total across the period.
- Related-party transactions priced without proper arm's-length documentation, which can undermine the qualifying income position even where substance and activity conditions are otherwise met.
Related corporate tax services in the UAE
Every corporate tax service is delivered by the same team that keeps your books, so registrations, returns and elections stay consistent year to year.
Related guides from our team
Practical explanations of the rules behind this service, written by our chartered accountants.
Common questions
What counts as 'adequate substance' for QFZP purposes?+
Broadly, having people, premises and expenditure proportionate to your claimed activity level in the free zone — a registered address alone, without matching operational presence, doesn't meet this bar.
What happens if we fail the QFZP test one year?+
You'd generally be taxed at standard rates for that period rather than losing free zone status permanently — but the specifics depend on which condition failed and how it's addressed going forward.
Does every free zone entity automatically get QFZP status?+
No — it must be actively assessed and claimed, testing your specific activities against the qualifying conditions; simply holding a free zone licence doesn't confer the status automatically.
Can holding company structures affect QFZP status?+
Yes — grouping a QFZP entity with non-qualifying entities, or restructuring intercompany relationships, needs specific assessment for its impact on qualifying income treatment.
Is the de minimis threshold a fixed amount or a percentage?+
It's generally expressed as a threshold relative to total revenue or a specific amount, whichever is relevant — this needs checking against the current published rules for your specific period.
Do we need audited financials to support a QFZP claim?+
Many free zone authorities expect audited financials as part of demonstrating substance and qualifying income — worth confirming your specific zone's expectation.
Claiming or planning to claim 0% free zone corporate tax?
We'll test your position against all four QFZP conditions before your return is due, not after an FTA query raises it for you.