When the UAE introduced corporate tax in 2023, free zone companies faced a new reality. The government wanted to maintain the country’s appeal as a global business hub while ensuring compliance with international tax standards. The solution was the concept of the Qualifying Free Zone Person (QFZP).
For entrepreneurs and investors in Dubai, this status matters. If your business is a QFZP, you can benefit from a 0% tax rate on qualifying income. If not, you risk being taxed like any other company on the mainland. The difference can be millions of dirhams over time.
Why the QFZP Status Matters for Businesses
Free zones have always been marketed as tax-friendly environments. With the introduction of corporate tax, the UAE preserved this advantage by allowing free zone companies that meet specific criteria to keep the 0% rate on eligible profits. This makes QFZP status a deciding factor in how competitive and cost-effective your business remains in Dubai and across the Emirates.
What is a Qualifying Free Zone Person (QFZP)?
Under Federal Decree-Law No. 47 of 2022 on Corporate Tax, a QFZP is a company incorporated in a free zone that fulfils the conditions in Article 18 of the law. Only juridical persons such as limited liability companies and branches can qualify. Individuals or unincorporated partnerships are excluded.
The status is not automatic. It depends on how the company operates, the type of income it earns, and whether it stays within the boundaries set by Cabinet Decision 100 of 2023 and the subsequent Ministerial Decisions:
- MD 265 of 2023 (qualifying and excluded activities, now updated by MD 229 of 2025)
- MD 230 of 2025 (recognised price reporting agencies for Quoted Prices)
Conditions to Qualify as a QFZP
Legal and operational requirements
First, the business must be legally incorporated in a recognised UAE free zone. It must also maintain adequate substance there. This means having real operations, assets, and staff in the free zone rather than just a paper presence. The core income-generating activities should take place within the free zone or a designated zone.
Income requirements
To be a QFZP, your Qualifying Income must arise from qualifying activities and remain within the de minimis threshold for non-qualifying revenue: the lower of 5% of total revenue or 5 million per tax period.
As updated in 2025, qualifying income includes:
- Transactions with other free zone companies
- Exports of goods or services to overseas clients
- Manufacturing, logistics, fund and wealth management, aircraft leasing/financing, headquarters services, or distribution of goods from a designated zone
- Commodity trading covering metals, minerals, energy, agricultural products, industrial chemicals, by-products, and environmental commodities, provided a Quoted Price exists
- Treasury and financing services, including intragroup arrangements and self-investment
- Certain intellectual property income, subject to additional conditions
Income from excluded activities can disqualify a company if it breaches the de minimis threshold. Excluded activities include:
- Transactions with natural persons, except in specific permitted sectors (e.g. shipping, fund management, aircraft leasing/financing)
- Real estate activities in the UAE, other than transactions involving commercial property with another free zone entity
- Non-qualifying intellectual property income
Compliance obligations
A QFZP must also meet important compliance rules:
- Audited financial statements are mandatory for all QFZPs, regardless of size (reaffirmed by Ministerial Decision 84 of 2025)
- All related-party transactions must follow the arm’s length principle with full transfer pricing documentation
- The de minimis rule applies strictly to each tax period
Together, these requirements ensure that only genuinely active and compliant free zone businesses enjoy the tax advantage.
Benefits of Being a QFZP
The incentive is clear. A QFZP pays 0% corporate tax on its qualifying income. Non-qualifying income is taxed at 9%, and the 375,000 small business band does not apply.
This treatment allows free zone companies to reinvest more of their earnings, scale faster, and remain highly attractive to global investors. The law also protects existing tax holiday promises, meaning that the 0% regime can last for the remainder of the free zone’s original exemption period, up to a maximum of 50 years.
Risks of Losing QFZP Status
The benefits come with strict conditions. If a company fails to maintain substance, breaches the de minimis rule, or earns too much from excluded activities, it can lose QFZP status.
The consequences are severe. The company is taxed at 9% on all profits for that year and cannot re-qualify for the next four tax periods. For businesses that structured themselves around being tax-free, this can be a costly mistake.
Comparing QFZPs with Other UAE Businesses
QFZP vs non-qualifying free zone companies
A qualifying entity pays 0% on eligible income and 9% on non-qualifying income. A free zone company that does not qualify is taxed exactly like a mainland company: 0% on the first 375,000 of profit and 9% above that.
QFZP vs mainland UAE companies
Mainland companies are not eligible to access the free zone regime. They pay corporate tax at the standard rate on profits above 375,000. They also face no restrictions on their income sources, unlike QFZPs, but lose out on the 0% opportunity.
QFZP Status for DUQE Free Zone Companies
For entrepreneurs in the DUQE Free Zone, QFZP status is particularly valuable. DUQE operates under Dubai’s Ports, Customs and Free Zone Corporation (PCFC) and issues Free Zone licences from its QE2 hub at Mina Rashid.
To benefit, DUQE companies must:
- Operate genuinely from their premises on the Queen Elizabeth 2 ship
- Keep non-qualifying revenue within the de minimis rule (≤5% or 5m)
- Maintain audited accounts and observe transfer pricing rules
If these conditions are met, DUQE entrepreneurs enjoy 0% corporate tax on qualifying profits, with full repatriation of earnings and no withholding taxes. This makes DUQE a highly cost-effective base for startups and international businesses targeting global markets. Contact us today for further information.
FAQs on Qualifying Free Zone Person Status
Can a company switch between QFZP and non-QFZP status?
If a company fails to qualify, it ceases to be a QFZP for that tax period and the following four.
Does every free zone entity automatically qualify as a QFZP?
No. Only those that meet all conditions, including income and compliance requirements, qualify.
What happens if a QFZP earns income from mainland UAE clients?
Such income is generally non-qualifying and taxed at 9%. Certain permitted services and distribution from a designated zone are exceptions, but exceeding the de minimis threshold risks losing QFZP status.
Are real estate businesses in free zones eligible for QFZP benefits?
Income from UAE real estate, excluding specific commercial property transactions between free zone persons, is taxed at 9%.
Do small DUQE startups also need audited accounts to qualify?
Yes. All QFZPs must maintain audited financial statements, regardless of size or revenue.
Ready to set up your business in DUQE Free Zone and qualify for the 0% tax regime?
Speak to DUQE’s experts today to structure your company correctly and make the most of Dubai’s most entrepreneur-focused free zone.