UAE free zone corporate tax: when QFZP status gives 0% and when 9%

What QFZP status is

It is not a licence and not an application to the FTA. A free zone company is treated as a QFZP automatically as long as it meets all the conditions and has not opted out. Corporate tax registration is required either way: the application is due within three months of the company's incorporation, and a late one costs AED 10,000.

Status conditions

• Real substance in the zone: assets, full-time staff and expenses for the core activity; outsourcing must go to providers located in a free zone and stay under the company's supervision
• Qualifying income — from transactions with free zone companies or from listed activities
• Other revenue — not from transactions with free zone companies and not from listed activities — no more than the lower of 5% of total revenue or AED 5 million per tax period
• Audited financial statements — at any revenue level
• Related-party transactions at market prices and with TP documentation
• The company has not elected the standard tax regime

Which income is taxed at 0%

The 0% rate applies not to all profit but to qualifying income. It comes from four kinds of income:

• Transactions with free zone companies that use the goods or services themselves and are not obliged to pass them on. Excluded: banking and insurance, except reinsurance; financing and leasing; real estate, except commercial property in the zone
• Listed activities — with corporate clients anywhere: manufacturing and processing, trading in qualifying commodities, holding shares, logistics, distribution from a designated zone to resellers, headquarters and treasury services to related companies, and other activities
• Income from qualifying intellectual property — calculated under a separate Ministry of Finance decision
• Other revenue — within the 5% / AED 5 million limit it is also treated as qualifying; branch income and non-qualifying income from real estate in the zone and from intellectual property are left out of the limit — they are taxed at 9%
• Not on the list: consulting, IT and marketing for clients outside free zones; sales to individuals are an excluded activity, except fund and wealth management, ships and aircraft financing and leasing. If this is the main revenue, the 5% limit will be exceeded

When 9% applies

A company with the status gets none of the standard-regime benefits: 0% up to AED 375,000, Small Business Relief, tax groups, transfer of losses.

• A company without the status — it did not meet the conditions or opted out: 0% on profit up to AED 375,000, 9% above
• A company with the status — 9% with no AED 375,000 threshold on income the law does not treat as qualifying: profit of a branch outside the zone — in the UAE, or abroad unless the foreign branch's profit is exempt — income from real estate in the zone, except commercial property transacted with a free zone company, and from non-qualifying intellectual property
• Working with mainland Dubai under the DET permit for free zone companies — 9% on that revenue and separate accounts
• The 5% / AED 5 million limit is exceeded or another condition is breached — the status is lost from the start of the period and for the next four

What to check before the tax period ends

1. 1Split the revenueDivide it into three parts: transactions with free zone companies, listed activities and other revenue. Other revenue must not exceed the lower of 5% of total revenue and AED 5 million. Leave out branch income and non-qualifying income from real estate in the zone and from intellectual property — it is taxed at 9% separately.
2. 2Check substance and the auditThe zone must hold assets, full-time staff and expenses for the core activity. Audited financial statements are needed at any revenue level; in many zones the auditor must be on the zone's approved list.
3. 3Compare with the standard regimeIf most revenue is non-qualifying, calculate the standard regime: 0% up to AED 375,000 and 9% above. With revenue of no more than AED 3 million in this and every previous period, you can elect Small Business Relief — for periods ending no later than 31 December 2029.
4. 4File the returnThe corporate tax return is filed within 9 months after the end of the tax period — even at 0%. Late filing costs AED 500 a month for the first 12 months, then AED 1,000.