A free zone licence is not a tax exemption
UAE corporate tax applies from financial years beginning on or after 1 June 2023, under Federal Decree-Law No. 47 of 2022. Article 18 keeps a 0% rate for a Qualifying Free Zone Person, and the detail sits in Cabinet Decision No. 55 of 2023 and Ministerial Decision No. 265 of 2023.
The 0% is not granted by the licence. It is earned, every year, by meeting each condition, and it applies only to qualifying income. Income outside that definition is taxed at 9% even in a company that qualifies.
The seven conditions
- Free zone person. A juridical person incorporated or registered in a free zone.
- Adequate substance. Core income-generating activities carried out in the zone, with adequate assets, adequate qualified full-time staff and adequate operating spend. Work can be outsourced within the zone, under your supervision.
- Qualifying income. Income that falls inside the qualifying definition and outside the excluded activities.
- De minimis. Non-qualifying revenue no greater than the lower of AED 5,000,000 or 5% of total revenue.
- No election. You have not elected to be taxed at the standard rates. The election is irrevocable.
- Transfer pricing.Related-party dealings at arm’s length, with the documentation required by Articles 34 and 55.
- Audited accounts. Audited financial statements prepared for the period.
The de minimis rule is where companies get caught
The threshold is the lowerof two numbers, and the headline one is rarely the one that binds. A company with AED 20 million of revenue reads “AED 5 million” and assumes it has five million of room. It has one million, because 5% of its revenue is the smaller figure.
Revenue AED 20,000,000 → ceiling AED 1,000,000
AED 2,000,000 of mainland billing is under the five million headline and still breaches the threshold, by double.
What failing actually costs
A company that fails any condition ceases to be a Qualifying Free Zone Person from the beginning of that tax period, and stays out of the regime for the four tax periods after it. One missed audit, or one year where the mainland side of the business grew faster than anyone measured, is five years at 9%.
That is the case for checking in month ten of a financial year rather than month two of the next one. The de minimis position is manageable while the year is open and is simply a fact once it has closed.
Frequently asked questions
- Does a free zone company pay 0% corporate tax in the UAE?
- Only on its qualifying income, and only while it meets every condition of Article 18 of Federal Decree-Law No. 47 of 2022. A free zone address on its own changes nothing. Income that is not qualifying income is taxed at 9%, and a company that fails any condition loses the 0% rate on everything.
- What is the de minimis threshold for a QFZP?
- Non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of total revenue. The word lower is the one that catches people. A company turning over AED 20 million has a ceiling of AED 1 million, not 5, because 5% of its revenue is the smaller of the two figures.
- What happens if we fail one of the conditions?
- The company stops being a Qualifying Free Zone Person from the start of that tax period and stays out of the regime for the four tax periods after it. That is five years at 9%, triggered by one condition in one year, which is why the arithmetic is worth checking before the year closes rather than after.
- Do we need audited accounts to keep the 0% rate?
- Yes. Preparing audited financial statements is a condition in its own right under Ministerial Decision No. 265 of 2023, not a formality that follows from the rest. A company with perfect substance and no audit does not qualify.
- Can we sell to mainland customers and stay qualifying?
- Yes, within the de minimis threshold. Revenue from a mainland customer who is not itself a free zone person is generally non-qualifying, so it counts toward the ceiling. Above the ceiling the exemption goes, which is why the mainland side of a free zone business is worth measuring rather than estimating.
Our corporate tax team reviews a free zone company’s position against the articles, splits qualifying from non-qualifying revenue properly, and puts the transfer-pricing documentation in place. If you already qualify, that is the answer you will get.
This checker reads the conditions in Federal Decree-Law No. 47 of 2022, Cabinet Decision No. 55 of 2023 and Ministerial Decision No. 265 of 2023, as at September 2026. Whether a particular stream of income is qualifying turns on what you sell and to whom, which is a question about your own books rather than about the law. Treat the result as a position to confirm, not a filing to rely on.