Qualifying Free Zone Person Status in the UAE: Conditions and Indian Owner Considerations

This article sets out the conditions under which a UAE free-zone company is taxed at 0% on its income as a Qualifying Free Zone Person (QFZP), the activities and income that qualify, the continuing obligations, and the Indian-law questions for resident Indian owners.

It matters now because a free-zone licence does not give an exemption. The 0% rate applies only to Qualifying Income of a QFZP, and for tax periods beginning on or after 1 January 2026 distributors operating in or from a Designated Zone carry an additional audit-report requirement. Indian entrepreneurs use free-zone companies for trading, consulting, technology, logistics, holding and group management, and each model needs testing against these conditions.

The documents referred to are Ministerial Decision No. 229 of 2025 (Qualifying and Excluded Activities), Federal Tax Authority (FTA) Decision No. 6 of 2026 (additional compliance procedures for QFZPs), the FTA Corporate Tax Guide for Free Zone Persons, and the EmaraTax registration platform.

Issue 1: Free-zone incorporation and QFZP status

A company incorporated in a UAE free zone is generally a Free Zone Person. To obtain the 0% rate it must also qualify as a QFZP. Where it does:

  • Qualifying Income is taxed at 0%;
  • Taxable Income that is not Qualifying Income is taxed at 9%.

Income therefore has to be classified. The 0% rate is not applied across the accounting profit as a whole.

The QFZP conditions are cumulative. A failure on one cannot be offset by compliance on another:

  1. adequate substance in the UAE;
  2. Qualifying Income;
  3. non-qualifying revenue within the de minimis limit;
  4. compliance with the arm's length principle;
  5. prescribed transfer pricing documentation;
  6. audited financial statements;
  7. no election to be taxed under the ordinary regime; and
  8. any further conditions prescribed.

Issue 2: What counts as Qualifying Income

Income from a transaction with another Free Zone Person qualifies where that person is the beneficial recipient of the goods or services and the income is not from an Excluded Activity. Income from a Non-Free Zone Person qualifies only if it arises from a prescribed Qualifying Activity. Each material revenue stream is tested separately.

Qualifying Activities under Ministerial Decision No. 229 of 2025

  • manufacturing of goods or materials;
  • processing of goods or materials;
  • trading in Qualifying Commodities;
  • holding shares and other securities for investment;
  • ownership, management and operation of qualifying ships;
  • reinsurance;
  • fund management;
  • wealth and investment management;
  • headquarters services to Related Parties;
  • treasury and financing services to Related Parties or for own account;
  • financing and leasing of aircraft;
  • distribution of goods or materials in or from a Designated Zone;
  • logistics services; and
  • activities ancillary to the above.

The description on the licence is not conclusive. Actual activity, contracts, the flow of goods and services and the records must match the statutory description.

Notes on selected activities