Qualifying Free Zone Person: Which Activities Still Get 0% Corporate Tax in 2026
A UAE free zone company can look perfectly positioned for 0% Corporate Tax — and still get the tax treatment wrong.
The reason is simple: the licence does not decide the outcome. The real answer sits deeper in the business — in the activity being performed, the income being earned and how that income fits within the rules for a Qualifying Free Zone Person.
This is where many apparently straightforward cases become less straightforward.
The framework was also revised under Ministerial Decision No. 229 of 2025, making it even more important to distinguish between what appears to qualify and what actually does.
Some activities clearly fall within the 0% Corporate Tax framework. Others qualify only when specific conditions are met. And a few business models can produce a very different result from what the licence description might suggest.
The sections ahead break down those differences, show where the real classification risks arise, and explain what a Qualifying Free Zone Person should check before relying on the 0% rate.
What a Qualifying Free Zone Person Actually Is
A Qualifying Free Zone Person (QFZP) is not a separate type of company. It is a tax status available to a Free Zone Person that continues to satisfy the conditions set by the UAE Corporate Tax Law and its implementing decisions.
The distinction matters because the 0% Corporate Tax rate applies only to Qualifying Income.
The starting point is straightforward. The entity must first be a Free Zone Person: a juridical person incorporated, established or otherwise registered in a Free Zone. This can also include a UAE or foreign juridical person with a branch registered in a Free Zone.
Qualification then depends on several conditions working together:
- adequate substance must be maintained in the Free Zone, with appropriate assets, qualified employees and operating expenditure;
- the entity must derive Qualifying Income;
- it must remain within the de minimis limit;
- it must comply with the arm’s length principle and applicable transfer pricing documentation requirements;
- it must not elect to enter the ordinary Corporate Tax regime; and
- it must prepare audited financial statements, as required under Ministerial Decision No. 84 of 2025.
There is another test that is easy to miss. A transaction with another Free Zone Person does not automatically produce Qualifying Income. Where qualification depends on the counterparty being a Free Zone Person, that counterparty must generally be the Beneficial Recipient of the goods or services under Cabinet Decision No. 100 of 2023.
This is also why the commonly used phrase free zone corporate tax exemption can be misleading. A QFZP is still a Taxable Person: 0% applies to Qualifying Income, while Taxable Income that is not Qualifying Income is generally subject to 9%.
The framework is federal, so the same principles can apply across DMCC, JAFZA, Meydan, IFZA, RAKEZ, DIFC and ADGM. For readers looking at incorporation rather than the tax test itself, ADEPTS covers that separately in its Dubai Free Zone company setup guide.
The Qualifying Activities List As It Stands Now
Knowing that an entity is a QFZP is only the first layer. The next question is more practical: what is the business actually doing?
Ministerial Decision No. 229 of 2025 provides the current list of Qualifying Activities. But the name of an activity is rarely enough on its own. Several come with conditions that can materially change the outcome.
| Qualifying Activity | What it covers in practice | Critical condition / common misreading |
| Manufacturing of goods or materials | Producing, assembling or improving products from components or raw materials | The substance supporting the manufacturing activity must be in the relevant Free Zone |
| Processing of goods or materials | Treating or transforming goods into another commercial or industrial form | Simple trading should not be confused with processing |
| Trading of Qualifying Commodities | Physical commodity trading, related hedging derivatives and associated structured commodity financing | A Quoted Price must exist. The activity is restricted where Revenue from distribution, warehousing, logistics or inventory-management functions reaches 51% or more of total Revenue |
| Holding shares and other securities for investment purposes | Equity interests and qualifying investment instruments held as investments | 12 months is the statutory period at which the investment-purpose treatment is deemed satisfied; the FTA’s existing guidance also recognises a demonstrable intention to hold for that period |
| Ownership, management and operation of Ships | Certain international shipping, chartering and maritime activities | Local transport, leisure vessels and similar uses fall outside the defined activity |
| Reinsurance services | Regulated reinsurance operations | Must fall within the applicable UAE regulatory framework |
| Fund management services | Portfolio, risk and day-to-day investment fund management | Must be subject to oversight by the relevant UAE Competent Authority |
| Wealth and investment management services | Discretionary and non-discretionary investment and wealth advisory services | Regulatory oversight in the UAE is required |
| Headquarter services to Related Parties | Group management, planning, procurement, coordination and similar central functions | Must be provided to Related Parties |
| Treasury and financing services | Liquidity, financing, debt and financial-risk management | Can now cover services to Related Parties or the QFZP’s own account |
| Financing and leasing of Aircraft | Aircraft, engine and rotable-component financing and leasing | The statutory definition should be tested against the actual arrangement |
| Distribution in or from a Designated Zone | Buying, selling and associated handling of qualifying goods | Location, import route and customer-use conditions all matter |
| Logistics services | Storage, transport, freight forwarding, customs brokerage and related services | The QFZP generally performs these services for another Person without taking title to that Person’s goods |
| Ancillary activities | Activities supporting one of the listed Qualifying Activities | They must be necessary for, or make only a minor contribution to, the main activity and be closely related to it |
The statutory definitions behind these distinctions are important. For example, the 51% restriction is expressly part of the Qualifying Commodity Trading definition; it is not a general restriction applying to every logistics or distribution business.
What does this mean for common free zone businesses?
A licence description alone still does not answer the tax question.
| Common business model | Potential QFZP treatment | What needs to be tested |
| E-commerce / trading company | Depends heavily on how and where distribution is carried out | Customer status, Designated Zone requirements, activity classification and de minimis |
| Consultancy serving mainland clients | Ordinary consultancy to Non-Free Zone Persons is generally not itself a listed Qualifying Activity | Nature of services, counterparty and de minimis exposure |
| Commodity trader | Potentially qualifying | Qualifying Commodity, Quoted Price, trading functions and 51% restriction |
| Holding company | Potentially qualifying | Nature of securities, investment purpose and holding period |
| Logistics operator | Potentially qualifying | Whether it provides logistics for another Person without taking title to the goods |
| Group treasury company | Potentially qualifying | Related Party or own-account activity, substance and transfer pricing |
| Fund manager | Potentially qualifying | Regulatory status, actual services performed and substance |
For Designated Zone distributors, there is now another layer. For Tax Periods beginning on or after 1 January 2026, FTA Decision No. 6 of 2026 requires an independent external auditor to perform agreed-upon procedures under ISRS 4400. The report must generally reach the FTA within 30 days after the Corporate Tax return filing deadline. If it is not submitted, the relevant distribution compliance conditions are not treated as satisfied.
That makes activity classification more than a one-time exercise. Two companies can hold broadly similar licences and still reach different UAE free zone corporate tax outcomes once their transactions, counterparties and operating arrangements are examined.
What Changed When MD 229 Replaced MD 265
Ministerial Decision No. 229 of 2025, issued on 28 August 2025, repealed MD 265 but applied from 1 June 2023. The biggest changes affect Qualifying Commodities, treasury activities and certain distribution arrangements.
| Area | Under MD 265 | Under MD 229 | Flag |
| Qualifying Commodities | Metals, minerals, energy and agriculture commodities in raw form | Expanded to industrial chemicals, Associated By-products and environmental commodities | CHANGED |
| Raw-form requirement | Required | Removed | CHANGED |
| Quoted Price | Not used | Commodity or Related Commodity must have a Quoted Price | NEW |
| Price reporting agencies | Not provided | Recognised agencies specified under MD 230 of 2025 | NEW |
| Commodity financing | Physical trading and hedging derivatives | Adds associated structured commodity financing, subject to the 51% Revenue restriction | CHANGED |
| Treasury and financing | Related Parties only | Related Parties or own account | CHANGED |
| Designated Zone distribution | Resale/processing customers; import through the Designated Zone | Adds public benefit entities; import condition remains | CHANGED |
| Finance/leasing carve-out | Ships, treasury and Aircraft | Adds Qualifying Commodity Trading | CHANGED |
| Reinsurance | Referenced Federal Law No. 6 of 2007 | Updated to Federal Decree-Law No. 48 of 2023 | CHANGED |
| Audited financial statements | Already required | Requirement retained; reference updated to MD 84 of 2025 | UNCHANGED |
The commodity changes are the most substantial: the old “raw form” test has been replaced by a Quoted Price approach, while structured commodity financing now sits expressly within the activity. Treasury businesses also gain a wider scope through the own-account provision.
Because MD 229 applies from 1 June 2023, businesses with earlier Corporate Tax positions should consider whether the revised rules change their historical classification. That does not mean every previously filed return requires amendment.
Excluded Activities: What Pushes Income to 9%
Not every activity carried out by a Qualifying Free Zone Person benefits from 0%. MD 229 identifies specific Excluded Activities, subject to important exceptions.
| Excluded Activity | General treatment | Key exception |
| Transactions with natural persons | Excluded | Certain Ship, fund management, wealth/investment management and Aircraft activities |
| Banking | Excluded | None within the Qualifying Activities list |
| Insurance | Excluded | Reinsurance and relevant headquarters services |
| Finance and leasing | Excluded | Qualifying Commodity Trading, Ships, treasury/financing and Aircraft financing/leasing |
| Immovable property | Excluded | Commercial Property in a Free Zone transacted with another Free Zone Person |
| Ancillary activities | Excluded | Where ancillary to an Excluded Activity |
The property rule deserves care. Specified Free Zone immovable-property income can be taxed at 9% while being disregarded for the de minimis calculation under Cabinet Decision No. 100 of 2023.
Intellectual property is different. It is not an Excluded Activity. Income from Qualifying Intellectual Property may benefit from 0% under the statutory nexus formula; non-qualifying IP income, and amounts exceeding the qualifying calculation, are generally subject to 9%.
The De Minimis Rule and the Five-Tax-Period Consequence
The de minimis rule allows a QFZP to earn some non-qualifying Revenue without immediately losing its status. Under MD 229 of 2025, that Revenue must not exceed the LOWER of 5% of total Revenue or AED 5,000,000 for the Tax Period.
Non-qualifying Revenue includes Revenue from Excluded Activities, non-Qualifying Activities with Non-Free Zone Persons, and transactions with a Free Zone Person that is not the Beneficial Recipient.
Before testing the limit, Cabinet Decision No. 100 of 2023 removes specified immovable-property Revenue, PE Revenue and non-qualifying IP Revenue from both sides of the calculation.
| Example | Revenue for de minimis | Threshold | Non-qualifying Revenue | Result |
| Revenue AED 20m, less AED 2m excluded property Revenue | AED 18m | 5% = AED 900,000 | AED 950,000 | Breach |
| Revenue AED 140m, less AED 20m PE Revenue | AED 120m | AED 5m (lower than 5% = AED 6m) | AED 4.8m | Within limit |
A breach is not confined to the excess Revenue. The entity ceases to be a Qualifying Free Zone Person from the start of that Tax Period and for the following four Tax Periods; ordinary Corporate Tax rules then apply to its Taxable Income.
The safer control is transaction-level monitoring throughout the year, with activity, counterparty and Beneficial Recipient status mapped before the threshold becomes a year-end surprise.
When 0% Is Not Worth Keeping
Preserving 0% Corporate Tax is not always the best commercial outcome. Under Article 19 of the UAE Corporate Tax Law, a QFZP may elect into the ordinary Corporate Tax regime from the current or following Tax Period. Once effective, the election applies for that period and the following four Tax Periods.
| QFZP maintained | Ordinary regime elected |
| 0% on Qualifying Income; 9% on other Taxable Income | Ordinary Corporate Tax rates apply |
| De minimis and QFZP conditions continue | QFZP-specific conditions fall away |
| Audited financial statements mandatory | Audit generally required above AED 50 million Revenue |
| Higher classification burden | Simpler tax profile in some cases |
The election is a deliberate choice, not a cure for a failed QFZP condition. Mainland revenue alone should not drive it: income from a Non-Free Zone Person can still be Qualifying Income if it comes from a Qualifying Activity that is not Excluded.
Electing out may make sense where non-qualifying income grows, activities are changing, or compliance costs outweigh the tax benefit. For some consultancies outside the qualifying framework, the ordinary regime may be realistic.
What to Do If You Filed Before MD 229 Was Issued
Because MD 229 of 2025 applies from 1 June 2023, a return prepared under MD 265 is not automatically wrong. The question is whether the revised rules change the reported QFZP or Corporate Tax position.
- Reclassify activities. Apply the current Qualifying and Excluded Activity rules to each affected Tax Period.
- Recheck counterparties. Confirm Free Zone status and Beneficial Recipient treatment where relevant.
- Recalculate de minimis. Use the statutory Revenue exclusions, not simply accounting Revenue.
- Compare the outcome. Identify whether QFZP status, Qualifying Income or Taxable Income changes.
- Select the correction route. If the filed position changes, assess the appropriate disclosure, correction or recovery mechanism.
- Check the audit requirement. MD 84 of 2025 applies to Tax Periods starting on or after 1 January 2025; MD 82 continues for earlier periods.
- Document the conclusion. Retain the legal analysis and evidence even where no filing change is required.
The review may also improve an earlier position because MD 229 broadened some qualifying categories.
For Tax Periods beginning on or after 1 January 2026, Designated Zone distributors must also add the FTA Decision No. 6 of 2026 AUP requirement to the review.
Where a filing change is identified, assess the procedure separately. ADEPTS covers related correction and audit issues in its Corporate Tax return errors guide.
How ADEPTS Handles Free Zone Tax Positions
A Free Zone Person that assumed the 0% Corporate Tax rate applied may need its position tested beyond the wording on its licence.
ADEPTS reviews the actual activities and income streams against the current Qualifying and Excluded Activities, then considers the counterparty, Beneficial Recipient status, substance and de minimis position. Where relevant, the review also extends to transfer pricing, Qualifying IP, audited financial statement requirements and the additional AUP requirements for Designated Zone distribution from 2026.
For businesses with earlier Tax Periods, the analysis may need to go back to 1 June 2023 to determine whether MD 229 changes a position previously taken under MD 265. The same review can also assess whether maintaining QFZP status remains commercially appropriate or whether an Article 19 election should be modelled.
The objective is a supportable tax position that clearly identifies what qualifies, what does not and how that treatment should flow into the Corporate Tax return. ADEPTS’ tax advisory team supports businesses through that assessment.
What the 0% Position Comes Down To
A free zone licence creates access to the QFZP framework, but the tax result depends on what happens after that.
Under MD 229 of 2025, the activity performed, the nature of the income and the conditions attached to it must be considered together. The de minimis test adds another layer because its Revenue base is not always the same as the accounting top line.
The consequence of getting that classification wrong can extend beyond a single income stream or Tax Period. At the same time, preserving 0% Corporate Tax should not become an objective in isolation if the underlying business model no longer fits the QFZP framework.
The practical position is therefore simple: establish whether the activities qualify, test the income and supporting conditions, and rely on the 0% rate only where the business can substantiate it.
FAQs:
Not necessarily. Mainland revenue is not automatically non-qualifying. If the income comes from a Qualifying Activity that is not an Excluded Activity, it may still be Qualifying Income. If it is non-qualifying, the de minimis test determines whether QFZP status is affected.
Yes, potentially. A UAE juridical person with a branch registered in a Free Zone can fall within the Free Zone Person framework. QFZP treatment then depends on whether the relevant conditions are met and how income attributable to the Free Zone branch and any Domestic Permanent Establishment is treated.
No. A QFZP remains a Taxable Person. The 0% rate does not remove Corporate Tax registration or filing obligations. Free Zone Persons must register where required and submit the applicable Corporate Tax return.
No. If a Free Zone Person fails a QFZP condition, it ceases to qualify from the beginning of that Tax Period and for the following four Tax Periods. QFZP treatment can resume after that period if the statutory conditions are then satisfied.
Not by itself. Adequate substance depends on the core income-generating activities, assets, qualified employees and operating expenditure appropriate to the business. The level required therefore depends on the nature and scale of the activity.
Not automatically. A QFZP can have Qualifying Income and other Taxable Income. Qualifying Income may remain subject to 0%, while other Taxable Income is generally subject to 9%, provided the entity continues to satisfy the QFZP conditions, including de minimis.
Potentially, yes. The customer’s location does not by itself determine the treatment. The relevant factors are the activity generating the income, whether it falls within a Qualifying Activity or an Excluded Activity, and whether the other QFZP conditions are satisfied.
References
- Audited Financial Statements for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses Ministerial Decision No. 84 of 2025 – Issued 25 March 2025 – (Effective from 25 March 2025). https://tax.gov.ae/Datafolder/Files/Pdf/2025/MD-No-84-of-2025.pdf.
- Authority, Federal Tax. “Legislation.” Federal Tax Authority – Legislation,
https://tax.gov.ae//en/legislation.aspx - Cabinet Resolution Identifying the Qualified Income for the Qualifying Free Zone for the Purpose of Federal Decree-Law Concerning the Corporate Tax. https://uaelegislation.gov.ae/en/legislations/2175.
- Federal Decree by Law Concerning Corporate and Business Tax.
https://uaelegislation.gov.ae/en/legislations/1582. - Federal Decree-Law No. (47) of 2022 On Corporate and Business Tax.
https://uaelegislation.gov.ae/en/legislations/1582/download. - International Standard on Related Services (ISRS) 4400 (Revised) | IAASB. 3 Apr. 2020,
https://www.iaasb.org/publications/international-standard-related-services-isrs-4400-revised. - Ministerial Decision No. 229 of 2025 Regarding Qualifying Activities and Excluded Activities for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
https://mof.gov.ae/wp-content/uploads/2025/09/EN-Ministerial-Decision-No.-229-of-2025-Regarding-Qualifying-Activities-and-Excluded-Activities.pdf. - Specification of Recognised Price Reporting Agencies for the Purposes of Ministerial Decision No. 229 of 2025 Regarding Qualifying Activities and Excluded Activities for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses Ministerial Decision No. 230 of 2025 – Issued 29 August 2025 – (Effective from 1 June 2023). https://tax.gov.ae/Datafolder/Files/Pdf/2025/MD-230-of-2025.pdf.
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