contacts Sign In
image

FAQ · SearchOffshore

What Is a Qualifying Free Zone Person?

A Qualifying Free Zone Person (QFZP) is a UAE free zone entity that meets specific conditions to benefit from a 0% corporate tax rate on qualifying income under the UAE Corporate Tax Law introduced in 2023. To qualify, the entity must maintain adequate substance in the free zone, derive income only from qualifying activities or qualifying transactions, and not elect to be subject to the standard 9% UAE corporate tax rate.

The Full Answer

Qualifying Free Zone Person — Conditions and Qualifying Income

The UAE introduced a federal corporate income tax at a headline rate of 9% from June 2023 for taxable persons with annual taxable income above AED 375,000. Free zone entities can access a 0% effective rate on qualifying income if they meet the QFZP conditions. The key conditions are:

  • Adequate substance: The QFZP must maintain adequate substance in the UAE free zone — this requires that core income-generating activities are conducted in the free zone, with qualified full-time employees and adequate operating expenditure
  • Qualifying income only: The 0% rate applies only to qualifying income — broadly, income from transactions with other free zone persons, income from qualifying activities (fund management, wealth management, regulated financial services and others as specified), and income from the holding and management of qualifying intellectual property
  • Non-qualifying income: Income from transactions with UAE mainland persons, or from non-qualifying activities, is subject to the standard 9% rate — unless it falls below the de minimis threshold (5% of total revenue or AED 5 million, whichever is lower)
  • Audited financial statements: QFZPs must prepare and maintain audited financial statements
  • No election out: A QFZP that elects to be treated as a standard taxable person loses QFZP status for that tax period and cannot re-elect for five years

The QFZP regime applies to entities in DIFC, ADGM, JAFZA, DMCC, and other designated UAE free zones. Each free zone authority has its own licensing and substance requirements that must be satisfied alongside the federal QFZP conditions.

The QFZP conditions are detailed and the interaction between qualifying and non-qualifying income, de minimis thresholds and substance requirements is complex. The UAE Ministry of Finance has issued guidance but the regime continues to develop. Any UAE free zone entity seeking to rely on QFZP status should take specific advice from a UAE-qualified tax advisor to confirm its eligibility and ongoing compliance position.

Related Questions

UAE Free Zone Tax — Further Questions

The QFZP regime applies to entities in all designated UAE free zones as specified in the UAE Corporate Tax Law and associated Cabinet decisions. These include DIFC, ADGM, JAFZA (Jebel Ali Free Zone), DMCC (Dubai Multi Commodities Centre), DAFZA (Dubai Airport Free Zone), Abu Dhabi free zones and others. The list of designated free zones is specified in the relevant Cabinet decision and should be verified against the current official list before reliance. Not all free zones in the UAE are designated — entities in non-designated areas cannot access QFZP status.
DIFC and ADGM entities can potentially qualify as QFZPs if they meet the conditions. Holding companies in DIFC and ADGM that derive income from the holding of shares in subsidiaries and from qualifying activities may access the 0% rate on qualifying income. The interaction between the QFZP conditions and holding company activities — particularly the treatment of dividends received from mainland UAE subsidiaries and from foreign subsidiaries — requires careful analysis. UAE-qualified tax advice is essential for any DIFC or ADGM holding company seeking to rely on QFZP status.
The QFZP regime, when properly structured, allows UAE free zone holding companies to maintain a 0% effective rate on qualifying income while accessing the UAE's extensive double tax treaty network of 130+ treaties. This combination — zero tax on qualifying income plus treaty access — is significantly more powerful than either Cayman (zero tax, no treaties) or some onshore jurisdictions (treaties, but full corporate tax). The substance requirement means genuine economic activity in the free zone is necessary, but the UAE's infrastructure, time zone and talent pool make genuine substance more achievable than in many competing offshore jurisdictions. UAE has materially increased its attractiveness as a holding jurisdiction since the introduction of the corporate tax framework and QFZP regime.
JurisdictionUAE UAECorporate Services UAETax Advisors GlossaryFree Zone Company GlossaryEconomic Substance

Find UAE Tax and Corporate Specialists

Browse tax advisors and corporate service providers across DIFC, ADGM and UAE free zones.

UAE Tax Advisors UAE Corporate Services
YMYL Compliance
What we are — and what we are not

SearchOffshore is a directory and information platform. It is important to understand what this means:

SearchOffshore is not a law firm, financial advisor, or tax consultant. Nothing on this platform constitutes legal, financial, tax or investment advice.
We verify firm existence and standing — we do not verify the quality of their advice. Conduct your own due diligence before engaging any professional.
The presence of a firm in our directory does not imply endorsement of that firm's services, advice, or suitability for your needs.
Offshore structures must comply with the tax and regulatory requirements of your home jurisdiction. Always obtain qualified legal and tax advice.