Corporate Tax UAE, Free Zone Tax, Insights

UAE Qualifying Income 2026: The Full QFZP 0% List

UAE Qualifying Income 2026 QFZP 0 percent corporate tax infographic

9 min read

What Counts as Qualifying Income for a UAE Free Zone Company?

Quick Answer: Qualifying Income is revenue a Qualifying Free Zone Person earns from one of 14 specific activities listed in Ministerial Decision No. 265 of 2023, such as manufacturing, fund management, or distribution from a Designated Zone. Only this income gets the 0% corporate tax rate; everything else is taxed at 9%, or the entire 0% status is lost if non-qualifying revenue breaches the de minimis limit.

Every free zone company in the UAE assumes it automatically pays 0% corporate tax. It does not. Article 18 of Federal Decree-Law No. 47 of 2022 only grants the 0% rate to a Qualifying Free Zone Person, and only on its Qualifying Income. Earn the wrong type of income, or too much of it, and the FTA taxes that income at 9%, or strips your 0% status entirely. Qaspro Global reviews this exact list with every free zone client before their first corporate tax return, because most business owners have never seen it.

The Full List of Qualifying Activities (Article 2, MD 265 of 2023)

Ministerial Decision No. 265 of 2023 lists exactly 14 categories of Qualifying Activities. Income from any of these, earned by a Qualifying Free Zone Person, is eligible for the 0% rate:

#	Qualifying Activity
a	Manufacturing of goods or materials
b	Processing of goods or materials
c	Trading of Qualifying Commodities (metals, minerals, energy, agriculture, traded in raw form on a Recognised Commodities Exchange Market)
d	Holding of shares and other securities for investment purposes (held at least 12 uninterrupted months)
e	Ownership, management and operation of Ships (international transport, towing, dredging; excludes local transport, leisure, floating hotels/restaurants/casinos)
f	Reinsurance services
g	Fund management services
h	Wealth and investment management services
i	Headquarter services to Related Parties
j	Treasury and financing services to Related Parties
k	Financing and leasing of Aircraft, engines or rotable components
l	Distribution of goods or materials in or from a Designated Zone
m	Logistics services (warehousing, cargo handling, freight forwarding, customs brokerage)
n	Any activity ancillary to activities (a) to (m)

Qaspro Global, a UAE-based tax and accounting consultancy, notes that “ancillary” in item (n) is narrowly defined: the activity must be necessary for, or make only a minor contribution to, the main Qualifying Activity to count.

What Is Explicitly Excluded, No Matter What Your Free Zone Licence Says?

Article 2, Clause 2 of Ministerial Decision No. 265 of 2023 lists Excluded Activities. Income from these is never Qualifying Income, regardless of your licence type:

Transactions with natural persons (individuals), except for fund management, wealth management, and aircraft financing/leasing to individuals
Banking activities as regulated under Article 65 of Federal Decree-Law No. 14 of 2018
Insurance activities, except reinsurance and headquarter services already listed as qualifying
Finance and leasing activities, except ship ownership/operation, treasury services to related parties, and aircraft financing already listed as qualifying
Ownership or exploitation of immovable property, except Commercial Property located in a free zone where the deal is with another Free Zone Person

This is why a free zone retail shop selling directly to walk-in customers, or a free zone consultancy invoicing UAE mainland individuals, typically does not qualify for 0% on that revenue: it is a transaction with a natural person and falls outside the qualifying list unless it is one of the four listed exceptions.

The De Minimis Rule: How Much Non-Qualifying Revenue Can You Have?

Article 3 of Ministerial Decision No. 265 of 2023 sets the de minimis threshold that protects your 0% status when you earn a small amount of non-qualifying revenue. Non-qualifying revenue must not exceed 5% of total revenue, or AED 5,000,000, whichever is lower, in that tax period.

Total Revenue	5% Cap	AED 5M Cap	Actual De Minimis Limit
AED 20,000,000	AED 1,000,000	AED 5,000,000	AED 1,000,000 (lower of the two)
AED 80,000,000	AED 4,000,000	AED 5,000,000	AED 4,000,000 (lower of the two)
AED 150,000,000	AED 7,500,000	AED 5,000,000	AED 5,000,000 (lower of the two)

Breach this limit and the consequence is severe: you do not just lose 0% on the excess non-qualifying income. Under Article 5(2) of Ministerial Decision No. 265 of 2023, failing any Qualifying Free Zone Person condition, including the de minimis test, means you cease to be a Qualifying Free Zone Person for the entire current tax period and the following 4 tax periods, paying 9% on all income during that time.

What Other Conditions Must a Qualifying Free Zone Person Meet?

Article 5 of Ministerial Decision No. 265 of 2023 adds two conditions on top of the general Qualifying Free Zone Person tests in Article 18 of Federal Decree-Law No. 47 of 2022:

Non-qualifying revenue must stay within the de minimis limit above
The business must prepare audited financial statements under Ministerial Decision No. 84 of 2025, regardless of revenue size

Qaspro Global’s guide to the AED 50 million external audit rule confirms every Qualifying Free Zone Person needs an audit, unlike mainland companies which are only required to audit above AED 50 million in revenue.

How Qualifying Intellectual Property Income Is Calculated

Income from Qualifying Intellectual Property is also Qualifying Income, but only in proportion to the research and development spend behind it. Article 4 of Ministerial Decision No. 265 of 2023 uses a “nexus” formula:

Qualifying Income = (Qualifying Expenditures + Uplift Expenditures) ÷ Overall Expenditures × Overall Income

Qualifying Expenditures are R&D costs directly connected to creating the IP, done in-house or outsourced to an unrelated party. Uplift Expenditures add 30% to that figure, capped at total Overall Expenditures. This formula, borrowed from the OECD’s modified nexus approach, prevents a business from buying IP developed elsewhere and claiming full 0% on the royalties without doing any of the underlying R&D itself.

Qualifying vs Excluded: A Side-by-Side Comparison

Scenario	Qualifying Income?
A JAFZA manufacturer selling goods it produces to a UAE mainland distributor	Yes, manufacturing qualifies regardless of buyer location
A DMCC commodities trader physically trading gold on a recognised exchange	Yes, Trading of Qualifying Commodities
An IFZA consultancy invoicing individual freelance clients directly	No, transactions with natural persons are excluded
A free zone company renting out a warehouse it owns to another free zone tenant	Yes, Commercial Property held in a free zone and rented to a Free Zone Person
A free zone company renting a residential villa it owns to a UAE resident	No, ownership of immovable property is excluded (not Commercial Property to a Free Zone Person)
A holding company owning shares in a subsidiary for 18 months	Yes, holding of shares for investment purposes (over 12 months)

Frequently Asked Questions

What is Qualifying Income under UAE corporate tax?

Qualifying Income is revenue a Qualifying Free Zone Person earns from one of the 14 Qualifying Activities listed in Article 2 of Ministerial Decision No. 265 of 2023. Only this income is eligible for the 0% corporate tax rate under Article 18 of Federal Decree-Law No. 47 of 2022.

Does selling to UAE mainland customers disqualify my free zone income?

Not automatically. Selling goods or services to mainland customers can still qualify if the activity itself is on the Qualifying Activities list, such as manufacturing or distribution from a Designated Zone. What disqualifies income is transacting with a natural person outside the four listed exceptions, not the buyer’s location.

What happens if my free zone company earns non-qualifying income?

Non-qualifying income is taxed at 9%. As long as total non-qualifying revenue stays within the de minimis limit (5% of total revenue or AED 5,000,000, whichever is lower), your Qualifying Income keeps its 0% rate. Exceed the limit and you lose Qualifying Free Zone Person status entirely for that tax period plus the next 4.

Is retail trade with individual consumers a Qualifying Activity?

No. Article 2(2)(a) of Ministerial Decision No. 265 of 2023 excludes transactions with natural persons, except for fund management, wealth management, reinsurance-adjacent headquarter services, and aircraft financing to individuals.

Can a free zone company own property and still be a Qualifying Free Zone Person?

Only for Commercial Property located in a free zone, and only where the transaction is with another Free Zone Person. Any other ownership or exploitation of immovable property is an Excluded Activity.

Does a Qualifying Free Zone Person need an audit even if revenue is under AED 50 million?

Yes. Article 5(1)(b) of Ministerial Decision No. 265 of 2023 requires every Qualifying Free Zone Person to prepare audited financial statements under Ministerial Decision No. 84 of 2025, regardless of revenue.

What is the de minimis limit for non-qualifying revenue in 2026?

5% of total revenue in the tax period, or AED 5,000,000, whichever amount is lower. A company with AED 200 million in total revenue is still capped at AED 5,000,000 in non-qualifying revenue, not AED 10 million.

How long do you lose Qualifying Free Zone Person status if you breach a condition?

Article 5(2) of Ministerial Decision No. 265 of 2023 states that failing any condition, including the de minimis test, means losing Qualifying Free Zone Person status from the start of that tax period and for the following 4 tax periods, a 5-period penalty in total.

Is logistics and warehousing income Qualifying Income?

Yes. Logistics services, including warehousing, cargo handling, freight forwarding, customs brokerage, and order and inventory management, are listed as a Qualifying Activity under Article 2(1)(m).

Does holding shares in a subsidiary always qualify for 0%?

Only if the shares or securities are held for investment purposes for an uninterrupted period of at least 12 months. Shorter holding periods do not meet the definition in Article 2(3)(d).

Running a free zone company also means residence visas and Emirates ID for you and your team. Our sister company Yalah Dubai handles UAE visas and PRO services — start with their guide on sponsoring family visas in the UAE.

Need Expert Help?

Qaspro Global’s tax consultants can review your free zone company’s revenue streams against the full Qualifying Activities list, calculate your de minimis headroom, and prepare your corporate tax return to protect your 0% rate. Contact us today for a free consultation.

Free zone companies closing down should confirm QFZP income and final tax treatment using the UAE company liquidation tax clearance checklist.