0 % on qualifying income applies only to Qualifying Free Zone Persons with adequate substance in the zone, compliance with the de-minimis threshold of 5 % or AED 5m and audited accounts. A breach costs the status for five tax years. As of 09/2026.
The number everyone knows, and the condition almost nobody mentions
0 % on qualifying income for Qualifying Free Zone Persons — substance and compliance conditions, tested yearly (as of 09/2026, Cabinet Decision No. 100 of 2023)The zero rate is real. It just does not apply to "free zone companies" but to Qualifying Free Zone Persons — and that status is tested every year. Lose it, and you do not only lose it going forward.
What substance concretely means
Substance is not a word for opinions. It is a list of things that must actually exist.
People. At least one person performing the core activity and qualified to do so — with a contract, a visa and pay that matches the function. A director on paper who is never in the country does not carry it.
Premises. An address where work happens. What suffices depends on the activity: for a small consultancy a dedicated desk can be enough, for trading with a warehouse it is not.
Decisions. Contracts negotiated and signed here, resolutions passed and documented here. Minutes are not formalism, they are the evidence — potentially years later.
Expenditure. Operating costs in the UAE at a level matching the activity. A company with substantial profit and costs in the low four figures does not explain itself.
Outsourcing within the zone is possible as long as supervision demonstrably stays with the company.
The de-minimis threshold and its echo
Non-qualifying revenue must not exceed 5 % of total revenue or AED 5m — whichever is lower. That sounds generous until you do the maths: at AED 2m of revenue it means AED 100,000. A single larger contract with a UAE mainland client can break it.
And then it gets expensive: the regular rate applies to the entire taxable profit, not only the excess. QFZP status falls away for the current and the following four tax years.
This is the point that surprises people most in advisory calls. One year's mistake echoes for five. Anyone operating near the threshold needs ongoing monitoring of the revenue mix — not a review after the fact.
What qualifying income actually is
Income from transactions with other free zone persons and from specified qualifying activities. Generally not included:
- revenue from customers in the UAE mainland
- income from property outside the zone
- income from certain regulated activities without the required licence
The formal obligations that trip people up
Audited financial statements, transfer pricing documentation for transactions with related parties, a timely corporate tax return. Miss one and the status falls even with impeccable substance. Registration, incidentally, is required regardless of the rate — even at 0 % you must be registered and file.
What we recommend
Build the substance before you need it, not when the review arrives. And track the revenue mix — noticing in the third quarter that the threshold will break leaves little room to act.
Whether your planned structure carries it is what the first consultation is for; for the tax assessment we bring in licensed partners.
Exit Palm does not provide legal or tax advice. For legal and tax questions we work with licensed partners in Germany and the UAE. All information without warranty, as of the date shown.