What is QFZP (Qualifying Free Zone Person)?
A Qualifying Free Zone Person is a Free Zone entity that meets specific tests under the UAE Corporate Tax law to retain the 0% rate on Qualifying Income. Tests include: substance (people and assets in the Free Zone), audited financial statements, transfer pricing compliance, de minimis non-qualifying revenue (≤5% or AED 5m).
Current Rate (Annual; tested each financial year)
0% on Qualifying Income (vs. 9% for non-qualifying)
Example
A Dubai Multi Commodities Centre (DMCC) trading FZCO sells to other Free Zone companies and non-UAE customers in qualifying activities. It maintains audited accounts and adequate substance — qualifies for QFZP, taxed at 0% on the qualifying portion.
How QFZP (Qualifying Free Zone Person) works in United Arab Emirates
Qualifying Income includes: - Income from transactions with other Free Zone Persons (excluding excluded activities) - Income from qualifying activities with non-UAE customers (manufacturing, trading commodities, holding shares, etc.) - Specific qualifying intellectual property income
Excluded activities and income from mainland UAE customers (other than those treated as 'Domestic Permanent Establishments' or specific allowed activities) attract the 9% rate. Failing the de minimis test (non-qualifying income > 5% of total or AED 5m, whichever is lower) disqualifies the entity from QFZP for 5 years.
Related terms
UAE Corporate Tax is the federal tax on business profits introduced by Federal Decree-Law No. 47 of 2022, effective 1 June 2023. It applies a 0% rate on the first AED 375,000 of taxable income and 9% above. Qualifying Free Zone Persons can pay 0% on Qualifying Income. Multinational groups within Pillar Two scope face a 15% Domestic Minimum Top-up Tax from 1 January 2025.
UAE Free Zones are special economic zones offering 100% foreign ownership, customs benefits, and (subject to QFZP rules) preferential 0% Corporate Tax on Qualifying Income. There are 40+ Free Zones across the seven emirates, each with their own Authority and licensing rules.
An FZCO is a Free Zone Company with multiple shareholders (typically 2 or more, depending on the Free Zone Authority). It is a separate legal entity with limited liability, registered with a specific UAE Free Zone Authority. Common form for founder-led businesses with co-founders.
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