Qualifying Free Zone Person (QFZP): How to Keep Your 0% Corporate Tax Status

Free zones in the UAE offer significant tax advantages, including the 0% Corporate Tax rate, but only if your business qualifies as a Qualifying Free Zone Person (QFZP). Understanding what this means and how to maintain your status is crucial to avoid unexpected tax liabilities.

What Is a Qualifying Free Zone Person (QFZP)?

A Qualifying Free Zone Person is a company or entity that:

• Operates in a UAE free zone.

• Conducts business primarily within the free zone or internationally, rather than with mainland UAE clients.

• Meets the conditions set out by the UAE Ministry of Finance to retain tax benefits.

Conditions to Maintain 0% Corporate Tax

To continue benefiting from a 0% Corporate Tax, QFZPs must satisfy several conditions:

1. Free Zone License Compliance
   Your business must maintain a valid free zone license and adhere to the free zone’s regulatory requirements.

2. Substance Requirements
   QFZPs must demonstrate real economic activity within the UAE, including:

   • Physical presence (office space in the free zone)

   • Adequate number of employees

   • Conducting core income-generating activities within the UAE

3. No Mainland Business Activities
   Income derived from mainland UAE clients may be subject to the standard 9% Corporate Tax, even if the business is located in a free zone. Proper contracts and accounting separation are essential.

4. Timely Filing and Reporting

   • All Corporate Tax returns must be filed on time.

   • Free zone entities must comply with annual regulatory filings to preserve QFZP status.

Common Mistakes to Avoid

Even free zone businesses can lose their 0% CT status if they:

• Fail to maintain the required substance or physical presence.

• Generate significant revenue from mainland UAE clients without proper structuring.

• Miss deadlines for tax or free zone regulatory filings.