Why the label “qualifying” matters
The 0% headline hides the word in front of it, and treating every free zone dirham as qualifying is a common way setups break.
Qualifying income
0%
Taxed at 0% as a Qualifying Free Zone Person
- Billed to other free zone persons
- Certain income earned outside the UAE
- From an activity that counts as qualifying
- With real substance behind it
Non-qualifying income
9%
Taxed at the standard rate, and able to cost the rest
- Most services billed to mainland UAE customers
- From an excluded activity
- Without the substance to support it
- Outside the qualifying conditions
What moves income from qualifying to non-qualifying?
Qualifying is decided stream by stream, on four tests that interact. Our qualifying income update covers what Ministerial Decision 229 of 2025 says about mainland customers and the listed and excluded activities.
Who the customer is
From mainland customers, only certain listed activities qualify, so the counterparty often decides the rate.
What the activity is
Income from an excluded activity does not qualify, whoever the customer is.
Where the value is created
If the real work does not sit in the free zone, a 0% claim can be unwound.
Tested on where the work is done
The de minimis limit
A little non-qualifying income is tolerated. Cross the limit and a minor stream becomes a major problem.
What non-qualifying free zone income costs
Non-qualifying income carries two costs, and founders rarely see the second one coming.
The 9% you expected
Cost one
Non-qualifying income is taxed at 9% rather than 0%. This is the cost most people plan for.
The status you lose
Cost two
Cross the de minimis limit and Qualifying Free Zone Person status goes, which puts all income under the standard regime for that period and the next four.
Two companies billing the same amount can hold very different ratios, and the trigger is often one overlooked customer type. The split is easiest to settle at the planning stage.
We map the split against your real revenue before you lean on the 0%, and we never assume it just because the company sits in a free zone.
- We mark which of your income streams qualify and which do not.
- We size the non-qualifying share against the de minimis limit.
- We say plainly when the safer plan is a different structure, or 9% on part of your income.
Whether your income qualifies is settled by an analysis of your facts, which we run before you rely on the 0% rate. See also when a free zone company loses 0%.
