Free Zone Persons & Qualifying Income
The 0% Rate
A Qualifying Free Zone Person (QFZP) enjoys a 0% Corporate Tax rate on qualifying income. This is a major incentive for Free Zone entities.
Conditions for QFZP Status
- Must be a Free Zone Person (incorporated in a UAE Free Zone)
- Must maintain adequate substance in the UAE
- Must derive qualifying income
- Must not have elected to be subject to the standard CT regime
- Must comply with transfer pricing rules
- Must prepare audited financial statements
Qualifying Income
Qualifying income includes:
- Income from activities conducted with persons outside the Free Zone
- Income from activities conducted with other Free Zone persons
- Income from activities specified in a Cabinet Decision (e.g., holding shares, treasury management)
- Income from the ownership/management of shares and securities
Non-Qualifying Income
- Domestic mainland income
- Certain activities specified as excluded (e.g., banking, insurance, activities with mainland UAE)
Treatment
- Qualifying income: 0%
- Non-qualifying income: 9% (standard rate, with AED 375,000 threshold)
Documentation
QFZPs must maintain:
- Audited financial statements
- Separation of qualifying and non-qualifying income
- Transfer pricing documentation
- Substance records