Free Zone Corporate Tax: How to Keep Your 0% Rate (QFZP Guide 2026)

Every free zone entity is within the corporate tax regime, must register with the FTA, and must file a return within 9 months of year end — even at 0%. The 0% rate is an outcome you qualify for annually, not a status your license grants.

Qualifying income. Broadly: income from transactions with other free zone persons (where they are the beneficial recipient), income from Qualifying Activities with any counterparty (manufacturing, processing, fund and wealth management, reinsurance, logistics, holding of shares, ship operation, financing of related parties, and others listed by Ministerial Decision No. 229 of 2025, which replaced Ministerial Decision No. 265 of 2023 with retroactive effect from 1 June 2023 MD 229 & MD 230 explained →), and income from other transactions provided the de minimis test is met. Income from Excluded Activities — dealings with natural persons (with limited exceptions), banking, insurance beyond reinsurance, and income from immovable property outside permitted categories — is never qualifying.

The de minimis test. Non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5 million. Breach it and QFZP status is lost entirely — 9% applies to everything, not just the excess, for the current period plus four subsequent periods.

Adequate substance. Core income-generating activities performed in the free zone, with adequate assets, qualified staff, and operating expenditure there. Outsourcing within the free zone is permitted with supervision.

Audited financial statements. Mandatory for every QFZP regardless of size audited financial statements requirement →.

Transfer pricing compliance. Arm's length dealings and required documentation transfer pricing requirements →.

QFZP status can be waived by election where the 9% regime with reliefs is more favorable — for example, a small free zone business that would qualify for the AED 375,000 0% band and simpler compliance. Note that a QFZP cannot claim Small Business Relief /tax/guides/small-business-relief-uae-explained →, so small free zone entities face a genuine either/or. This is a modeling exercise, not a default /tax/tax-advisory →.

A domestic permanent establishment on the mainland is taxed at 9% on its attributable income, while the free zone entity can retain 0% on its qualifying income if conditions hold. The accounting separation must be clean.

Zone-specific rules — approved auditor panels, renewal audit requirements, and substance expectations — vary in practice. See our IFZA corporate tax guide → and DMCC corporate tax guide →, or browse all UAE free zones →.