- A free zone company is tax-free in the UAE only on qualifying income, and only as a Qualifying Free Zone Person meeting every condition.
- Conditions include adequate substance, qualifying income, the de minimis limit, audited financial statements and arm's length pricing.
- Breaching them moves all income to the standard rates and can cost the status for that period and the following four.
The rate depends on how you operate
Founders often sign a lease and build a structure on a 0% assumption they never tested.
What are the QFZP conditions for 0%?
Five conditions hold the status together. They interact, and two companies in the same free zone can land on opposite sides of the line.
- Adequate substance. Real activity in the zone, with the people and decisions to match.
- Qualifying income. It turns on your customer and your activity, and the line is rarely where founders assume.
- The de minimis limit. Cross the small margin allowed for non-qualifying income and the whole status goes.
- Audited financial statements. The income split has to stand up in audited accounts.
- Arm's length pricing. In group structures, related-party pricing is where 0% quietly unravels.
What decides whether your company qualifies
The conditions are the same for everyone, but the answer differs by company because four things decide which side of the line you land on.
- The activity. What you actually sell.
- The customer. Who you sell it to.
- The substance. Where the work is actually done.
- The structure. How the group is set up.
Most consultancy, marketing and IT services to mainland clients do not count as qualifying income for free zone companies.
When a free zone company loses 0%
One breached year can put 0% out of reach for five.
Fail the conditions and all income moves to the standard regime: 0% up to AED 375,000 and 9% above. Qualifying Free Zone Person status goes for that period and the next four.
We test free zone 0% against your real facts before you rely on it, and we will not call it realistic when it is not.
We look at your activity, customers, substance and records, then tell you whether qualifying status is realistic and what it would take to hold it. If a mainland structure would serve you better, we say so, and our corporate tax service reviews either one before you file.