Guide
Qualifying Free Zone Person explained
The short answer
A Qualifying Free Zone Person is a free-zone entity that meets all the conditions set out in the UAE corporate tax rules and can therefore apply a 0% rate to qualifying income. Non-qualifying income is taxed at standard rates, and failing a condition can cost the status for the relevant tax period and following periods.
This is the single most misrepresented topic in UAE setup marketing. 'Free zone means 0% tax' is not accurate.
The status is conditional, tested against your actual operations, and should be assessed with a tax adviser before you rely on it.
The conditions in outline
- The entity must maintain adequate substance in the free zone.
- Its income must be qualifying income as defined in the rules.
- It must not have elected to be subject to standard corporate tax.
- It must comply with transfer-pricing rules and documentation requirements.
- It must meet the de minimis requirement for non-qualifying revenue.
- It must prepare audited financial statements.
Qualifying vs non-qualifying income
Whether income qualifies depends on the activity and the counterparty, including how transactions with mainland UAE persons are treated. Excluded activities are defined in the rules, and income from them is not qualifying income.
Losing the status
Common ways the status is put at risk.
Substance in name only
- Why it matters
- Adequate substance is a condition, not a formality
Non-qualifying revenue above the de minimis
- Why it matters
- Breaching it can cost the status
No audited financial statements
- Why it matters
- An explicit requirement of the regime
Weak transfer-pricing documentation
- Why it matters
- Related-party dealings must be documented
| Risk | Why it matters |
|---|---|
| Substance in name only | Adequate substance is a condition, not a formality |
| Non-qualifying revenue above the de minimis | Breaching it can cost the status |
| No audited financial statements | An explicit requirement of the regime |
| Weak transfer-pricing documentation | Related-party dealings must be documented |
