Qualifying Free Zone Persons and the 0% UAE Corporate Tax: What You Really Need to Know

With the introduction of UAE Corporate Tax, many Free Zone businesses are asking the same question:Can we still benefit from the 0% Corporate Tax rate?

The short answer is yes, provided certain conditions are met.

If a business qualifies as a Qualifying Free Zone Person (QFZP) and carries out Qualifying Activities, income from those activities may continue to be taxed at 0%, even under the new Corporate Tax regime.

Let’s break this down in a practical way.

When Does the 0% Corporate Tax Rate Apply?

A QFZP can benefit from the 0% Corporate Tax rate when it sells goods or services (other than Excluded Activities) to:

• Other Free Zone Persons, and

• Where those parties are the Beneficial Recipients of the goods or services.

In simple terms, if you are operating within a Free Zone and providing qualifying services or goods to other Free Zone businesses for their own use, the income from those transactions may remain tax-free.

What Are “Qualifying Activities”?

Under Ministerial Decision No. 139 of 2023 and Ministerial Decision No. 265 of 2023, the following are considered Qualifying Activities:

• Manufacturing of goods or materials

• Trading of Qualifying Commodities

• Holding of shares and other securities

• Ownership, management, and operation of ships

• Reinsurance services (subject to regulatory oversight in the UAE)

• Fund management services (subject to regulatory oversight)

• Wealth and investment management services (subject to regulatory oversight)

• Headquarter services provided to Related Parties

• Treasury and financing services provided to Related Parties

• Financing and leasing of aircraft, including engines and components

• Distribution of goods or materials in or from a Designated Zone

What About Ancillary Activities?

The law also recognizes that businesses often carry out supporting activities.

Ancillary activities are those that:

• Are necessary for performing the main Qualifying Activity, or

• Make only a minor contribution to it, and

• Are so closely connected to the main activity that they should not be treated as separate.

The good news?These ancillary activities are also treated as Qualifying Activities, as long as they support the main qualifying business.

Why This Matters

Incorrect classification of activities or misunderstanding the Free Zone rules can result in:

• Loss of the 0% Corporate Tax benefit

• Exposure to the standard 9% Corporate Tax rate

• Compliance risks and penalties

That’s why getting this right from the start is critical.

Need Help? We’re Here for You

If you’re unsure whether your business qualifies as a QFZP, or if your activities fall within the scope of Qualifying Activities, professional advice can save you time, money, and future risk.

📌 Tax Man in Middle East specializes in UAE Corporate Tax advisory, Free Zone compliance, and ongoing tax support.

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👉 Reach out to Tax Man in Middle East today and let us help you navigate UAE Corporate Tax with confidence.