QFZP Rules: How to Qualify for 0% Corporate Tax in UAE Free Zones
What Is a Qualifying Free Zone Person?
A Qualifying Free Zone Person (QFZP) is the UAE tax law's designation for a free zone company that meets specific conditions to enjoy a 0% corporate tax rate on qualifying income. Think of it as an earned status, not an automatic right — you must actively meet the requirements every tax period.
The QFZP regime replaced the old free zone tax holidays, which were typically granted for 15 or 50 years. Under the new corporate tax law, the 0% benefit continues indefinitely — as long as you keep qualifying.
The Five Requirements
To be a QFZP, your free zone company must meet all five conditions simultaneously:
1. Adequate Substance
You must have genuine economic activity in the UAE. This means adequate employees (or outsourced staff), adequate assets, and management decisions made within the free zone. A shell company with no real operations will not qualify.2. Qualifying Income
The majority of your income must come from qualifying sources — transactions with other free zone persons, qualifying activities, or income from outside the UAE that qualifies under the rules.3. De Minimis Threshold
Your non-qualifying revenue must not exceed the lower of AED 5 million or 5% of total revenue. This is the tripwire that catches most companies off guard.4. Audited Financial Statements
You must prepare and maintain audited financial statements in accordance with accounting standards accepted in the UAE (IFRS or IFRS for SMEs).5. No Election Out
You must not have elected to be subject to the regular corporate tax regime. Once you opt out, you cannot come back for a specified period.The De Minimis Threshold in Detail
The de minimis threshold is the most operationally challenging requirement. Here is how it works:
- Calculate your total revenue for the tax period
- Identify your non-qualifying revenue (revenue from mainland customers, excluded activities, etc.)
- Non-qualifying revenue must be below the lower of AED 5 million or 5% of total revenue
Example: Your company earns AED 2 million total. 5% of AED 2 million is AED 100,000. Since AED 100,000 is lower than AED 5 million, your non-qualifying revenue must stay below AED 100,000.
Another example: Your company earns AED 200 million total. 5% is AED 10 million. Since AED 5 million is the lower of the two, your non-qualifying revenue must stay below AED 5 million.
The danger zone is mid-year. If you take on a mainland project in October without checking the numbers, you might breach the threshold and lose QFZP status for the entire year — retroactively.
Consequences of Breaching QFZP Status
If you fail any of the five requirements during a tax period, you lose QFZP status for that entire period — not just from the date of the breach. This means:
- All of your income for that period is subject to 9% corporate tax (above the AED 375,000 threshold)
- You cannot re-elect QFZP status for a minimum period (currently expected to be at least one tax period)
- Any tax planning based on the 0% rate must be unwound
This is why tracking is so important. By the time you file your return and realize you breached, it is too late. You need real-time visibility into your qualifying vs non-qualifying revenue ratio.
Planning Strategies
Practical steps to protect your QFZP status:
- Separate income streams in your chart of accounts — tag every revenue line as qualifying or non-qualifying at the point of invoicing
- Monitor the de minimis ratio monthly — do not wait for year-end to check
- Vet new clients before onboarding — if a potential client is a mainland entity, model the impact on your ratio before signing
- Document substance actively — keep records of where decisions are made, employment contracts, lease agreements
- Get the audit sorted early — do not wait until filing season. Engage an auditor at the start of the financial year
Maya Finance helps with the first two: automatic classification of qualifying vs non-qualifying income, and a real-time dashboard showing where you stand against the de minimis threshold.
Frequently asked questions
What is the de minimis threshold for QFZP?
Non-qualifying revenue must stay below the lower of AED 5 million or 5% of your total revenue. If your total revenue is AED 2 million, the threshold is AED 100,000 (5% of AED 2 million). If your total revenue is AED 200 million, the threshold is AED 5 million.
Can I lose QFZP status?
Yes. If you breach any of the five requirements — substance, qualifying income, de minimis threshold, audited financials, or the no-election condition — you lose QFZP status for the entire tax period. All income becomes subject to the standard 9% rate.
How long does it take to regain QFZP status after a breach?
You cannot re-elect QFZP status for a minimum of one tax period after losing it. This means a single breach can cost you two years of the 0% rate — the year of the breach plus the waiting period.