Free Zone Does Not Automatically Mean 0%
The UAE Corporate Tax regime treats free zone persons as taxable persons. A Qualifying Free Zone Person can benefit from 0% Corporate Tax on qualifying income, but only where the statutory conditions are satisfied and documented. A business must assess its licence, activity, counterparty profile, income source, substance, and excluded activity risk.
The De Minimis Trap
Non-qualifying revenue can disqualify a free zone person where the de minimis threshold is exceeded. The Ministry of Finance has described this threshold as the lower of 5% of total revenue or AED 5,000,000, subject to the relevant exclusions and rules. This makes monthly income classification and contract review more valuable than year-end cleanup.
Evidence Pack
- 01 Licence activity map against actual revenue-generating activities.
- 02 Counterparty classification: free zone person, mainland person, natural person, non-resident, related party.
- 03 Qualifying income, excluded activity, and de minimis monitoring schedule.
- 04 Substance files: people, assets, premises eligibility, decision-making, contracts, and board records.
Transfer Pricing Still Applies
QFZP analysis should not be separated from transfer pricing. Related-party services, royalties, financing, cost sharing, trading margins, and management fees need arm's length support. Where documentation thresholds apply, the master file, local file, disclosure form, and intercompany agreements should align with the free zone income position.
Operating Model Recommendation
Free zone businesses should maintain a live QFZP dashboard before filing season: revenue by category, non-qualifying exposure, related-party flows, substance actions, open contract changes, and management sign-off.