Meta description: Learn how UAE freezone companies can preserve 0% corporate tax UAE treatment in 2026 through QFZP conditions, audits, and compliance steps.

A freezone licence does not automatically guarantee a 0% corporate tax rate in the UAE. In 2026, a freezone company must qualify as a Qualifying Free Zone Person (QFZP) and continue meeting detailed conditions relating to substance, income, activities, transfer pricing, financial statements, and revenue thresholds.

The consequences of getting this wrong can be significant. Under the five-year lockout rule, failure to meet a QFZP condition may result in the company losing its status for the current tax period and the following four tax periods. During that period, the standard 9% UAE corporate tax rate can apply to all taxable income, rather than only to non-qualifying income.

We explain the main requirements below so that freezone business owners can prepare proactively and protect their tax position.

How to Understand Why a Freezone Licence Is Not Enough

A freezone company may be legally incorporated in a UAE freezone, hold a valid trade licence, and still fail to qualify for the 0% QFZP regime.

The preferential treatment applies only where the company:

Is a Free Zone Person under the UAE Corporate Tax Law.
Maintains adequate substance in the UAE and relevant freezone.
Earns qualifying income from permitted activities.
Has not elected to be taxed under Article 19.
Complies with transfer pricing requirements.
Meets additional conditions prescribed by the Minister, including the de minimis test and audited financial statements.

The principal legal framework is found in Federal Decree-Law No. 47 of 2022, particularly Articles 18 and 19, together with Cabinet Decision No. 100 of 2023 and subsequent Ministerial Decisions.

When we support clients with company formation UAE services, we assess the proposed activity, jurisdiction, ownership structure, operating model, and anticipated revenue before recommending a freezone. Incorporation should support the intended tax position rather than simply provide a low-cost licence.

How to Meet the Five QFZP Conditions

The QFZP regime is best understood as five connected conditions. Meeting only one or two of them is not sufficient.

1. How to Maintain Adequate Substance in the Freezone

A QFZP must maintain adequate substance in the UAE. In practice, the FTA expects the company to perform its core income-generating activities in the relevant freezone or designated zone.

This normally requires an operating presence that is proportionate to the business, including:

Appropriate office, warehouse, plant, or other premises.
Assets used in the qualifying activities.
Qualified full-time employees based in the freezone where the activity is conducted.
Operating expenditure that supports the company’s core activities.
Genuine business records showing that the company operates from the UAE.

The FTA’s Corporate Tax Guide for Free Zone Persons, CTGFZP1, applies a substance-based approach. There is no single employee number or fixed expenditure threshold that applies to every business. Adequacy depends on the size, complexity, and nature of the activity.

For example, a manufacturing business would normally require more substantial premises, equipment, staff, and operating costs than a small holding company. Similarly, a treasury or investment management business should be able to demonstrate qualified personnel and genuine decision-making capacity.

Key management decisions should also be made from the UAE where they form part of the company’s core activities. A registered address without meaningful operations may create a material compliance risk.

2. How to Earn Qualifying Income

A QFZP must derive qualifying income under Cabinet Decision No. 100 of 2023 and the updated activity rules in Ministerial Decision No. 229 of 2025.

Ministerial Decision No. 229 of 2025 repealed and replaced Ministerial Decision No. 265 of 2023. It applies retrospectively from 1 June 2023 and sets out the current qualifying and excluded activities.

Qualifying activities may include:

Manufacturing and processing of goods or materials.
Trading in qualifying commodities where a quoted price exists.
Holding shares and securities for investment purposes.
Fund management and certain wealth and investment management services.
Headquarter services to related parties.
Treasury and financing services to related parties or for the company’s own account.
Financing and leasing of aircraft.
Reinsurance.
Ownership, management, and operation of qualifying ships.
Distribution of goods or materials in or from a designated zone.
Activities ancillary to qualifying activities.

Income must be analysed by activity and transaction. A company should not assume that all revenue is qualifying simply because it is invoiced by a freezone entity.

3. How to Avoid an Article 19 Election

Article 19 allows a freezone person to elect to be subject to the standard UAE Corporate Tax regime. However, making this election means the company cannot continue to be treated as a QFZP.

Before making any election, the company should model the long-term financial impact. The decision may affect:

The treatment of qualifying income.
The availability of the 0% QFZP rate.
Tax reporting obligations.
The company’s future compliance strategy.

We recommend obtaining professional advice before selecting or changing the applicable tax treatment.

4. How to Comply with Transfer Pricing Rules

QFZPs must comply with transfer pricing requirements under Articles 34 to 36 of the Corporate Tax Law.

Article 34 requires related-party transactions to follow the arm’s-length principle. This means transactions between related companies should be priced as if they had taken place between independent parties.

Article 35 determines whether parties are related through ownership, control, voting rights, or other forms of influence. Article 36 addresses payments and benefits provided to connected persons, such as owners, directors, officers, and their related parties.

Practical compliance measures include:

Preparing written intercompany agreements.
Maintaining evidence supporting pricing and commercial terms.
Applying an appropriate transfer pricing method.
Recording management fees, loans, service charges, and royalties properly.
Keeping supporting invoices, calculations, and payment records.
Reviewing whether transfer pricing documentation is required under the relevant thresholds.

QFZP status does not remove the need for robust transfer pricing governance.

5. How to Satisfy the De Minimis and Audit Requirements

Ministerial Decision No. 229 of 2025 adds two important conditions:

Non-qualifying revenue must remain within the de minimis limit.
The QFZP must prepare audited financial statements under Ministerial Decision No. 84 of 2025.

Under Ministerial Decision No. 84 of 2025, audited financial statements are mandatory for QFZPs regardless of revenue. There is no general turnover exemption for a QFZP.

The audit should support the classification of revenue, expenses, assets, employees, and related-party transactions. It is therefore important to involve the auditor before the year-end rather than treating the audit as a last-minute filing exercise.

How to Calculate the QFZP De Minimis Threshold

The de minimis rule limits non-qualifying revenue to the lower of:

AED 5,000,000; or
5% of total revenue.

For example, assume a UAE freezone company earns total revenue of AED 8,000,000 during the tax period.

Total revenue: AED 8,000,000
5% of total revenue: AED 400,000
Absolute threshold: AED 5,000,000
Applicable limit: AED 400,000

Therefore, the company’s non-qualifying revenue must not exceed AED 400,000.

If non-qualifying revenue reaches AED 450,000, the company fails the de minimis condition even though the amount is below AED 5,000,000. The percentage test is the lower threshold in this example.

Companies should monitor this threshold throughout the year. Waiting until the tax return is prepared may leave insufficient time to restructure contracts, separate activities, or correct revenue classification.

There is also an important rate distinction. A QFZP does not receive the ordinary AED 375,000 taxable income band for non-qualifying income. Where non-qualifying income is taxable under the QFZP rules, the 9% rate applies from the first dirham.

How to Identify Excluded Activities

Excluded activities cannot generally generate qualifying income for the 0% QFZP rate. Under Ministerial Decision No. 229 of 2025, key exclusions include:

Transactions with natural persons, subject to specific exceptions.
Banking activities.
Insurance activities, except qualifying reinsurance activities.
Finance and leasing activities, except permitted qualifying activities such as aircraft financing and leasing or certain treasury services.
Ownership or exploitation of immovable property, except qualifying commercial property located in a freezone and transacted with a Free Zone Person.
Activities ancillary to excluded activities.

The natural-person exclusion is particularly relevant for businesses selling directly to consumers. A freezone consultancy, retailer, online seller, or service provider should carefully assess whether its customers are individuals or legal entities.

Similarly, a freezone company owning mainland property or earning income from non-qualifying finance arrangements should not assume that the activity benefits from the QFZP rate.

How to Understand the Five-Year Consequence of Failure

Article 18(6), together with the implementing rules, creates a substantial consequence for QFZP failures.

If a company fails any relevant QFZP condition during a tax period:

It ceases to be a QFZP from the beginning of that tax period.
The loss continues for the following four tax periods.
The company enters a total five-tax-period lockout.
The 9% corporate tax rate may apply to all taxable income for the current period and the lockout periods.

This can be triggered by issues such as exceeding the de minimis threshold, failing to prepare audited financial statements, conducting excluded activities, or lacking adequate substance.

Separate administrative penalties may also apply. Under Cabinet Decision No. 75 of 2023, late filing of a Corporate Tax return attracts:

AED 500 per month, or part of a month, during the first 12 months.
AED 1,000 per month, or part of a month, from the 13th month onward.

The penalty can apply even where no tax is payable.

How to Prepare the 2026 QFZP Pre-Filing Checklist

Before submitting the Corporate Tax return, we recommend completing the following review:

Confirm the company remains a Free Zone Person.
Map every revenue stream to qualifying, non-qualifying, or excluded activities.
Recalculate the de minimis threshold using total revenue.
Confirm that non-qualifying revenue remains below the lower applicable limit.
Verify that core income-generating activities are performed in the freezone.
Review employees, premises, assets, and operating expenditure supporting substance.
Confirm that key management and commercial decisions are appropriately documented in the UAE.
Prepare audited financial statements under Ministerial Decision No. 84 of 2025.
Review all related-party transactions under Articles 34 to 36.
Maintain agreements, invoices, customer records, import documents, and payment evidence.
Check whether the company is a designated-zone distributor.
If it is, prepare the additional agreed-upon procedures report required by FTA Decision No. 6 of 2026.

FTA Decision No. 6 of 2026 applies to tax periods beginning on or after 1 January 2026 for QFZPs distributing goods or materials in or from a designated zone. The report must be obtained from an independent external auditor and submitted to the FTA within 30 days after the Corporate Tax return deadline.

The report examines matters such as customer reseller status, sales records, import documents, customs declarations, and whether goods entered the UAE through a designated zone. Failure to submit it can mean that the relevant QFZP conditions are not considered satisfied.

How to Protect Your Freezone Tax Position

Maintaining 0% corporate tax treatment requires ongoing operational discipline, not simply a freezone licence. A company must align its activities, contracts, people, premises, accounting records, and tax filings with the QFZP conditions throughout every tax period.

At my eloah business hub, we provide tailored UAE Corporate Tax support, including QFZP assessments, tax registration, audited financial statement coordination, transfer pricing guidance, and pre-filing reviews. We can also support related business requirements, including business bank account UAE assistance and business loan UAE guidance, where banking and finance decisions form part of the company’s broader operating plan.

Our approach is transparent and practical. We assess the business model, identify risks early, and provide clear recommendations with upfront costs and no hidden fees.

This article is for general educational purposes and does not replace advice based on your company’s specific facts, financial records, freezone, activities, and tax period.

Official references:

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How to Keep Your UAE Freezone Company’s 0% Corporate Tax Rate in 2026: QFZP Conditions Explained