Unlock the Full Potential of UAE Free Zone 0% Tax Rate
By KCM Consultants
Published 20 June 20263 min
Not every entity in a UAE free zone automatically qualifies as a Free Zone Person for the 0% Corporate Tax rate — eligibility is tied to real economic activity and substance[1]. A Qualifying Free Zone Person (QFZP) is subject to 0% on Qualifying Income and 9% on Taxable Income that is not Qualifying Income, and is not eligible for the standard 0% band up to AED 375,000[2].
Who Qualifies as a Free Zone Person?
Not every entity in a free zone automatically qualifies as a Free Zone Person (FZP). The 0% rate is strictly tied to real economic activity — substance is mandatory[1]. Proper classification is the foundation of accessing the preferential rate.
De Minimis Threshold
Non-qualifying revenue must not exceed AED 5 million or 5% of total revenue (de minimis)[1]. The FTA Free Zone Persons guide states the de minimis requirements are met if non-qualifying Revenue does not exceed the lower of AED 5,000,000 or 5% of total Revenue[2].
Audited Financial Statements
FZPs must prepare IFRS-compliant audited financial statements regardless of revenue[1]. The FTA guide confirms that a Free Zone Person must prepare and maintain audited Financial Statements, regardless of the amount of Revenue it earns[2].
QFZP Tax Rates
A QFZP is subject to 0% on Qualifying Income and 9% on Taxable Income that is not Qualifying Income[2]. A QFZP is not eligible to benefit from the 0% standard Corporate Tax rate applicable on Taxable Income up to the AED 375,000 threshold[2].
The High Cost of Non-Compliance
A QFZP that elects to be subject to the standard Corporate Tax rules and rates, or that fails to meet the criteria to be a QFZP for a Tax Period, will cease to be a QFZP from the beginning of that Tax Period and the four subsequent Tax Periods[2]. During that five-period window the entity is subject to standard Corporate Tax rules — including 0% on Taxable Income up to AED 375,000 and 9% above that threshold[2][1].
References
- KCM Consultants, Unlock the Full Potential of UAE Free Zone 0% Tax Rate (20 June 2026).
- Federal Tax Authority, Corporate Tax Guide — Free Zone Persons (CTGFZP1) (20 May 2024).