QFZP — the qualifying activities list.
Cabinet Decision 100 of 2023 lists 14 activities that earn 0% UAE Corporate Tax for free-zone companies. The list, the de minimis test, the substance rules and a worked example.
What the QFZP regime requires
The Qualifying Free Zone Person (QFZP) regime applies the 0% UAE Corporate Tax rate to qualifying income earned by a free-zone entity that meets all of these conditions:
- Maintains adequate substance in the UAE (people, premises, expenditure).
- Derives qualifying income from qualifying activities.
- Has not elected to be subject to standard 9% Corporate Tax.
- Complies with the arm\'s length principle and transfer-pricing documentation requirements.
- Prepares audited financial statements.
- Earns no more than the higher of AED 5,000,000 or 5% of total revenue from non-qualifying income (the "de minimis" test).
Failing the de minimis test — even by one dirham — disqualifies the entity for the entire tax period, exposing all of its income to 9% Corporate Tax.
The qualifying activities list
Cabinet Decision 100 of 2023 (as amended by Cabinet Decision 265 of 2023 and Ministerial Decision 265 of 2023) specifies the list of qualifying activities. Income earned from these activities by a QFZP from a non-UAE counterparty (or from another free-zone person) is qualifying income, taxable at 0%.
- Manufacturing of goods or materials.
- Processing of goods or materials.
- Trading of qualifying commodities — metals, minerals, energy, agricultural commodities traded on a recognised commodities exchange.
- Holding of shares and other securities for investment purposes (minimum 12-month uninterrupted ownership).
- Ownership, management and operation of ships.
- Reinsurance services subject to regulatory oversight.
- Fund management services subject to regulatory oversight.
- Wealth and investment management services subject to regulatory oversight.
- Headquarters services to related parties.
- Treasury and financing services to related parties.
- Financing and leasing of aircraft, including engines and rotable components.
- Distribution of goods or materials in or from a Designated Zone to a customer that resells, processes or alters them.
- Logistics services.
- Any ancillary activities to the above (e.g. support functions, administrative services that directly support a qualifying activity).
Activities that explicitly do not qualify
- Banking activities, insurance (other than reinsurance), and finance and leasing activities (other than treasury to related parties and aircraft leasing).
- Ownership or exploitation of immovable property other than commercial property within a Free Zone leased to other Free Zone persons.
- Ownership or exploitation of intellectual property assets — except a narrow "qualifying IP" carve-out for IP that derives from R&D actually conducted by the QFZP (modified-nexus principle).
- Any activity not on the qualifying list.
The de minimis test — worked example
A UAE Free Zone entity has total revenue for the tax period of AED 50,000,000. It earns AED 48,500,000 from manufacturing exported to non-UAE customers (qualifying income) and AED 1,500,000 from selling those same goods to UAE mainland customers (non-qualifying — it would need a UAE mainland trade licence to do this at scale, and the income is taxable at 9%).
Non-qualifying income is AED 1,500,000. The de minimis threshold is the higher of AED 5,000,000 or 5% of AED 50,000,000 = AED 2,500,000. The entity is below the threshold; QFZP status is preserved; the AED 48,500,000 of qualifying income is taxed at 0%; the AED 1,500,000 of non-qualifying income is taxed at 9%.
If non-qualifying income had been AED 3,000,000, QFZP status would have been lost for the entire tax period; the entire AED 50,000,000 would have been taxed at 9% above the AED 375,000 threshold.
Substance requirements — how much is enough
The QFZP regime requires adequate substance, defined as:
- Adequate qualified employees physically present in the UAE.
- Adequate operating expenditure in the UAE.
- Adequate physical assets in the UAE.
"Adequate" is not numerically defined — it is judged on a Core Income-Generating Activities (CIGA) test. A small consultancy with one founder, a desk and modest opex will satisfy substance for that scale of activity. A claimed manufacturing QFZP with no factory, no workers and no machinery will not.