QFZP: Qualified Free Zone Entity – The Ultimate Guide

Qualified Free Zone Entity (QFZP)

This guide will walk you through the requirements, the de minimis rule, and how to maintain compliance to safeguard your 0% tax status.

The UAE’s corporate tax regime has introduced various considerations for businesses operating within Free Zones. One of the most critical aspects for companies to understand is the classification of a Free Zone Person and the tax benefits associated with this status. If your business is based in a Free Zone, determining whether you qualify as a Free Zone Person under the UAE Corporate Tax Law is essential to optimize tax planning and compliance.

What is a Free Zone Person?

A Free Zone Person refers to an entity that is incorporated, registered, or otherwise recognized within a Free Zone in the UAE. This applies to juridical persons, meaning companies and other legal entities rather than individuals conducting business.

To be considered a Free Zone Person, an entity must:

• Be legally registered within a UAE Free Zone.
• Maintain adequate substance within the Free Zone, ensuring that business operations and decision-making take place there.

Why Qualifying as a QFZP Matters

Imagine running your business in Dubai with zero corporate tax on your profits. Sounds ideal, right? The UAE government has made this a reality for companies that qualify as Qualified Free Zone Persons (QFZPs) under its corporate tax framework. However, not all Free Zone companies automatically qualify.

Failing to meet QFZP criteria means your business will be taxed at 9% on all taxable income.

So, how can you ensure that your business remains tax-exempt while operating in a UAE Free Zone? 

What is a Qualified Free Zone Entity (QFZP)?

To enjoy the 0% corporate tax rate, a Free Zone Person must meet the following key conditions:

1. Operate Within a Recognized UAE Free Zone

Your company must be registered in a recognized UAE Free Zone such as DIFC, DMCC, JAFZA, or others.

2. Generate Income from Qualifying Activities

The UAE government has designated specific “Qualifying Activities” that are eligible for the 0% tax rate, including:

• Manufacturing & processing
• Logistics & distribution
• Holding company activities (e.g., holding shares/securities)
• Headquarters & regional offices
• Fund & wealth management
• E-commerce with warehousing facilities
• Certain service-based businesses

If your company’s income primarily comes from these activities, you have a strong chance of qualifying. However, if you engage in excluded activities like financial services or non-designated real estate transactions, you may not be eligible.

3. Maintain a Physical Presence in the Free Zone

Your business must demonstrate substantial presence in the Free Zone by:

• Having a physical office or co-working space
• Hiring staff or outsourcing professionals to conduct operations
• Ensuring key business functions are carried out within the Free Zone

4. Comply with Financial & Tax Regulations

The UAE requires QFZPs to maintain proper records and meet compliance obligations, including:

• Maintaining audited financial statements
• Filing corporate tax returns
• Complying with Transfer Pricing and Economic Substance rules

5. Adhere to the De Minimis Rule

Even if your company generates some non-qualifying income, it must remain within the de minimis threshold:

• Not more than 5% of total revenue OR AED 5 million, whichever is lower.

Example: If your Free Zone business earns AED 10 million per year, no more than AED 500,000 (5%) can come from non-qualifying activities. Exceeding this limit means losing QFZP status and being taxed at 9% on all income.

6. Stay Updated & Seek Professional Guidance

Corporate tax laws evolve, and staying compliant is crucial to retaining your tax benefits. Regularly check updates from the UAE Ministry of Finance and seek expert advice to ensure your company remains fully compliant.

Checklist for Becoming a Qualified Free Zone Entity (QFZP)

• Legally registered in a recognized UAE free zone
• Generating income from qualifying activities
• Maintaining sufficient physical presence in the Free Zone
• Complying with economic substance and transfer pricing rules
• Keeping detailed financial records and tax filings
• Ensuring non-qualifying revenue stays within limits

Don’t Risk Losing Your 0% Tax Advantage!

Achieving Qualified Free Zone Person (QFZP) status is essential for keeping your corporate tax at 0%. However, with the UAE’s strict regulations, a small mistake could result in your business losing its tax exemption and paying 9% corporate tax.

To ensure you meet all requirements and maximize your tax benefits, contact EZONE today. Our expert team will guide you through the process, handle compliance, and ensure your business remains tax-efficient.

 Get in touch with EZONE now.

Secure your 0% corporate tax status – don’t leave it to chance!