If you operate a freezone company in the UAE, you may have heard that freezone businesses can benefit from a 0% corporate tax rate. However, this rate is not automatic.
Under Federal Decree-Law No. 47 of 2022, only companies that qualify as a Qualifying Free Zone Person (QFZP) and earn qualifying income can benefit from the 0% corporate tax rate on that income. Other freezone companies are subject to the standard 9% corporate tax rate on taxable income above AED 375,000.
With corporate tax compliance becoming increasingly important in 2026, freezone businesses need to understand the conditions for maintaining QFZP status.
What Is the QFZP Regime?
The QFZP regime is the UAE’s framework for preserving the freezone tax advantage under the corporate tax system.
Rather than providing a blanket tax exemption to every freezone company, the regime provides a conditional 0% corporate tax rate for qualifying income when all required conditions are met.
A company must continue meeting the applicable conditions throughout its tax period. Losing QFZP status can result in the company being subject to the 9% corporate tax rate on all taxable income for the current tax period and the following four tax periods.
0% vs 9% Corporate Tax
A QFZP generally pays:
- 0% corporate tax on qualifying income
- 9% corporate tax on non-qualifying income, subject to the applicable rules
If QFZP status is lost, the 9% rate can apply to all taxable income above AED 375,000 for the relevant period and the subsequent four tax periods.
Which Freezone Companies Can Qualify?
The QFZP regime can apply to companies incorporated or registered in UAE free zones.
Examples of businesses covered in the source material include:
- Trading companies dealing in qualifying commodities
- Manufacturing and processing businesses
- Holding companies
- Headquarters and treasury centres
- Logistics and shipping businesses
- Aircraft financing businesses
- Fund managers
- Reinsurance businesses
- Distribution companies operating from designated zones
The important point is that having a freezone licence alone does not guarantee 0% corporate tax treatment. Businesses must assess their activities, income, substance, and compliance requirements.
Key Requirements for QFZP Status
To qualify and maintain QFZP status, a company must satisfy all applicable conditions.
1. Maintain Adequate Substance in the UAE
A freezone company must maintain a genuine operational presence in the UAE.
This can include:
- Appropriate employees
- Physical office space or operational facilities
- Relevant business assets
- Genuine operating expenditure
- Management and oversight of income-generating activities from the UAE
A company with only a registered address and no genuine business operations may fail the substance requirement.
2. Earn Qualifying Income
The company’s income must arise from qualifying activities under the applicable UAE corporate tax rules.
The source identifies the following qualifying activities:
- Manufacturing and processing of goods or materials
- Trading of qualifying commodities
- Holding of shares and other securities
- Ownership, management, and operation of ships
- Reinsurance services
- Regulated fund management
- Regulated wealth and investment management
- Headquarters services to related parties
- Treasury and financing services to related parties
- Financing and leasing of aircraft
- Distribution of goods from a designated zone
- Logistics services
- Qualifying intellectual property activities
The treatment of intellectual property is subject to the applicable rules, including the OECD nexus approach referenced in the source material.
3. Do Not Elect Out of the QFZP Regime
The company must not have elected to be subject to the standard 9% corporate tax rate.
According to the source material, such an election is irrevocable for the current period.
4. Comply With Transfer Pricing Rules
Transactions with related parties and connected persons must comply with the arm’s length principle under the UAE Corporate Tax Law and applicable transfer pricing requirements.
Businesses should maintain appropriate transfer pricing documentation and ensure related-party transactions are properly supported.
5. Meet the De Minimis Threshold
Non-qualifying revenue must not exceed the lower of:
- AED 5 million, or
- 5% of total revenue
For example, if a company has AED 20 million in total revenue, 5% equals AED 1 million. If non-qualifying revenue reaches AED 1.1 million, the company exceeds the applicable threshold described in the source material and may lose QFZP status.
6. Maintain Audited Financial Statements
QFZPs are required to prepare IFRS-compliant audited financial statements, regardless of revenue size, according to the source material.
7. Submit an AUP Report Where Required
Under FTA Decision No. 6 of 2026, certain QFZPs conducting distribution activities with qualifying and non-qualifying revenue streams may need to submit an Agreed-Upon Procedures (AUP) Report.
The source states that the report must be prepared under ISRS 4400 (Revised) and submitted within 30 days of the Corporate Tax Return filing date.
How to Maintain QFZP Status: Step-by-Step
Step 1: Review Your Business Activities
Map every revenue stream against the applicable qualifying activities.
Identify which income may qualify for the 0% rate and which income may be non-qualifying.
Step 2: Establish Adequate Substance
Make sure the business has appropriate employees, premises, assets, expenditure, and management activity in the UAE.
Keep supporting documentation for your operational presence.
Step 3: Monitor the De Minimis Ratio
Monitor non-qualifying revenue throughout the year rather than waiting until year-end.
The source recommends setting internal alerts at 3% to provide a buffer before reaching the applicable 5% threshold.
Step 4: Maintain Transfer Pricing Documentation
Maintain appropriate documentation for related-party transactions.
For groups meeting the applicable threshold, additional Country-by-Country Reporting requirements may also apply.
Step 5: Engage an Auditor Early
Since audited financial statements are a QFZP condition, businesses should engage an appropriate auditor before the financial year-end rather than treating the audit as an afterthought.
Step 6: File Your Corporate Tax Return on Time
Corporate Tax Returns are due 9 months after the end of the relevant financial year.
For example, a company with a 31 December 2025 year-end has a filing deadline of 30 September 2026, according to the source material.
Step 7: Submit the AUP Report if Applicable
Where the AUP requirement applies to the business, the report should be submitted within the required timeframe following the Corporate Tax Return filing.
Common Mistakes UAE Freezone Companies Should Avoid
Assuming Freezone Status Automatically Means 0% Tax
A freezone licence by itself does not guarantee 0% corporate tax. The business must qualify as a QFZP and meet the applicable conditions.
Ignoring Substance Requirements
A company with no genuine employees, operations, or management activity in the UAE may face problems meeting the substance requirement.
Breaching the De Minimis Threshold
One-off transactions, mainland service income, or other non-qualifying revenue can potentially increase the non-qualifying revenue ratio. Businesses should monitor this throughout the year.
Neglecting Transfer Pricing Documentation
Related-party transactions should be properly documented and supported under the applicable transfer pricing requirements.
Missing Transitional Relief
The source notes that businesses holding certain assets before the UAE Corporate Tax Law took effect may be eligible for transitional relief under Ministerial Decision No. 120 of 2023. The election must be made in the first Corporate Tax Return, making timely review important.
Treating Multiple Freezone Branches as Separate Entities
Where branches operate across multiple free zones, the source states that they are assessed collectively for QFZP purposes. A compliance issue affecting one branch can therefore affect the wider legal entity.
How Tax Falcon Can Help Freezone Companies
Tax Falcon is an FTA-approved tax advisory firm specializing in UAE corporate tax and freezone compliance.
Its services for freezone companies include:
- QFZP eligibility assessments
- Qualifying income analysis
- Transfer pricing documentation
- De minimis monitoring
- AUP report coordination
- Corporate Tax Return preparation and filing
- Transitional relief elections
The objective is to help businesses identify compliance risks early and maintain the requirements necessary for their applicable corporate tax treatment.
Frequently Asked Questions
Do all UAE freezone companies automatically get 0% corporate tax?
No. Only companies that qualify as a Qualifying Free Zone Person (QFZP) and meet the applicable conditions can benefit from the 0% rate on qualifying income. Other freezone companies are subject to the standard corporate tax rules.
What happens if I lose QFZP status?
According to the source material, losing QFZP status can result in the company being subject to the 9% corporate tax rate on its entire taxable income for the current tax period plus the following four tax periods.
What is the de minimis threshold?
Non-qualifying revenue must not exceed the lower of AED 5 million or 5% of total revenue, according to the source material. Businesses should monitor this ratio regularly.
Are transactions with mainland UAE companies qualifying income?
The treatment depends on the nature of the transaction. The source notes that certain transactions involving mainland businesses may qualify, while service income from mainland clients and transactions with natural persons are generally treated as non-qualifying. Each transaction should therefore be assessed carefully.
What is the AUP Report requirement?
Certain QFZPs engaged in distribution activities with qualifying and non-qualifying revenue streams may need to submit an Agreed-Upon Procedures (AUP) Report under FTA Decision No. 6 of 2026. The report must be prepared under ISRS 4400 (Revised) and submitted within 30 days of the Corporate Tax Return filing date.
Protect Your 0% Corporate Tax Status
Freezone businesses should not assume that their freezone licence automatically provides a 0% corporate tax rate. QFZP status depends on meeting multiple conditions relating to qualifying income, substance, de minimis thresholds, transfer pricing, financial statements, and other compliance requirements.
Tax Falcon’s freezone tax specialists can help assess your eligibility, prepare the required documentation, and support ongoing UAE Corporate Tax compliance.
Phone: +971 56 973 0073
Email: support@taxfalconuae.com
Website: taxfalconuae.com
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Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. UAE tax legislation is subject to change. Businesses should consult a qualified tax advisor for guidance specific to their circumstances. Tax Falcon UAE is an FTA-approved tax agency (Registration No. 20056800).