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Qualifying Free Zone Person: qualifying income

Applies
FY2024 onwards
Reviewed
Rule
UAE-CT-QFZP-INC-2024.1
By

What income qualifies for the 0% free zone rate?

Income from free zone persons outside Excluded Activities, from Qualifying Activities with mainland persons, and qualifying IP income. PE income is taxed at 9%.

Per Federal Decree-Law No. 47 of 2022, Articles 3(2) and 18

A Qualifying Free Zone Person's Qualifying Income — taxed at 0% — is income from transactions with a Free Zone Person that is the Beneficial Recipient, other than from an Excluded Activity; income from transactions with a Non-Free Zone Person in respect of a Qualifying Activity that is not an Excluded Activity; qualifying income from Qualifying Intellectual Property; and any other income, provided the de minimis requirements are met. Income attributable to a Domestic or Foreign Permanent Establishment, taxable Free Zone immovable property income and non-qualifying intellectual-property income are Taxable Income at 9% and sit outside the de minimis altogether.

The classification decides which of a Qualifying Free Zone Person's income sits at 0%, and feeds the de minimis: non-qualifying revenue within the ceiling is still taxed at 0%, and above it the person loses Qualifying Free Zone Person status for five Tax Periods.

How one stream of income is classified

First — income that is Taxable Income outright (CD 100 of 2023, Articles 5 to 7)

Taxed at 9% under Article 3(2)(b) of the Decree-Law, and left out of BOTH sides of the de minimis calculation (Article 4(3)).

  • Income attributable to a Domestic Permanent Establishment (a fixed place outside the Free Zones, tested under Article 14 as adapted) or a Foreign Permanent Establishment
  • Income from immovable property in a Free Zone that is not Commercial Property, or that is Commercial Property transacted with a Non-Free Zone Person
  • Income from intellectual property that is not Qualifying Intellectual Property, or beyond the Qualifying Income the MD 229 of 2025 Article 4 formula allows

Qualifying Income (CD 100 of 2023, Article 3(1))

  • (a) Transactions with a Free Zone Person that is the Beneficial Recipient — uses and enjoys the service or goods, with no obligation to supply them on — other than from an Excluded Activity
  • (b) Transactions with a Non-Free Zone Person, only for a Qualifying Activity that is not an Excluded Activity
  • (c) Qualifying Income from Qualifying Intellectual Property, under the MD 229 of 2025 Article 4 formula
  • (d) Any other income, provided the de minimis requirements are met

Qualifying Activities (MD 229 of 2025, Article 2(1))

  • Manufacturing, and processing, of goods or materials
  • Trading of Qualifying Commodities (not by a person whose distribution, warehousing, logistics or inventory functions are 51% or more of its Revenue)
  • Holding of shares and other securities for investment purposes (held for at least twelve months)
  • Ownership, management and operation of Ships; financing and leasing of Aircraft
  • Reinsurance; fund management; wealth and investment management — each regulated
  • Headquarter services to Related Parties; treasury and financing services to Related Parties or for its own account
  • Distribution of goods or materials in or from a Designated Zone; logistics services
  • Activities ancillary to any of these

Excluded Activities (MD 229 of 2025, Article 2(2))

  • Transactions with natural persons — except in relation to Ships, fund management, wealth and investment management, and Aircraft financing and leasing
  • Banking; insurance (other than reinsurance and captive headquarter insurance); regulated finance and leasing (other than the listed Qualifying Activities)
  • Ownership or exploitation of immovable property, other than Commercial Property in a Free Zone transacted with a Free Zone Person
  • Activities ancillary to any of these

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. An undecided input is never read as a no.

  2. 2

    Income Cabinet Decision No. 100 of 2023 treats as Taxable Income

    Permanent Establishment income, taxable Free Zone property income and non-qualifying IP income are Taxable Income at 9% and outside the de minimis. Tested first.

  3. 3

    Excluded activity

    Income from an Excluded Activity is never within Article 3(1)(a) or (b), whoever the counterparty is.

  4. 4

    Transaction with a Free Zone Person

    Qualifying where the Free Zone Person is the Beneficial Recipient and the activity is not excluded.

  5. 5

    Qualifying activity

    With a Non-Free Zone Person, qualifying only for a Qualifying Activity. Otherwise the income is non-qualifying revenue for the de minimis.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

Sale to another Free Zone company

A Free Zone manufacturer sells goods to another Free Zone Person that uses them itself, in an activity that is not excluded.

Computed

Qualifying Income as computed: the income is from a transaction with a Free Zone Person that is the Beneficial Recipient, and not from an Excluded Activity (Article 3(1)(a) and 3(2) of Cabinet Decision No. 100 of 2023), based on the determinations you supplied.

Decided by the transaction with a free zone person

Qualifying activity with the mainland

A Free Zone treasury company earns interest from financing its mainland Related Parties — a Qualifying Activity.

Computed

Qualifying Income as computed: the income is from a transaction with a Non-Free Zone Person in respect of a Qualifying Activity that is not an Excluded Activity (Article 3(1)(b) of Cabinet Decision No. 100 of 2023), based on the determinations you supplied.

Decided by the qualifying activity

Services to mainland customers

A Free Zone consultancy invoices mainland businesses for consulting — not a Qualifying Activity, so non-qualifying revenue for the de minimis.

Computed

Non-qualifying revenue as computed: the income is from a transaction with a Non-Free Zone Person, or with a Free Zone Person that is not the Beneficial Recipient, and not from a Qualifying Activity, based on the determinations you supplied. It counts as non-qualifying revenue for the de minimis: within the ceiling it is still Qualifying Income under Article 3(1)(d) of Cabinet Decision No. 100 of 2023; above it, the person ceases to be a Qualifying Free Zone Person for this Tax Period and the next four.

Decided by the qualifying activity

Rent from a mainland tenant

A Free Zone company lets part of its Free Zone office to a mainland business. Taxable at 9%, and outside the de minimis.

Computed

Taxable Income at 9% as computed: this is income from immovable property in a Free Zone that is residential, or commercial but transacted with a Non-Free Zone Person (Article 6), which Cabinet Decision No. 100 of 2023 treats as Taxable Income under Article 3(2)(b) of the Decree-Law whatever the activity or counterparty. Article 4(3) also leaves it out of both non-qualifying and total revenue for the de minimis, so it does not endanger the person's status. Based on the determination you supplied.

Decided by the income cabinet decision no. 100 of 2023 treats as taxable income

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

1 input still need your determination:

  • Is the income attributable to a Domestic or Foreign Permanent Establishment, from immovable property in a Free Zone (residential, or commercial with a Non-Free Zone Person), or intellectual-property income beyond the qualifying amount — or none of these?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader