A UAE free zone company doesn't get the 0% corporate tax rate just for being in a free zone. It needs Qualifying Free Zone Person (QFZP) status, and one of the conditions — the De Minimis threshold — is also the single most common way businesses lose that status without realising it.
What QFZP status actually gets you
A Qualifying Free Zone Person pays 0% corporate tax on Qualifying Income, and 9% on any non-qualifying income. Qualifying Income covers income from transactions with other free zone persons (with some exceptions) and income from qualifying activities, whether carried out directly or outsourced to another free zone entity.
The De Minimis threshold
A QFZP can earn some non-qualifying income without losing its status — as long as it stays within the De Minimis threshold: non-qualifying revenue must not exceed the lower of 5% of total revenue or AED 5,000,000 in the tax period.
| Total revenue | Applicable threshold |
|---|---|
| AED 10,000,000 | AED 500,000 (5%) |
| AED 50,000,000 | AED 2,500,000 (5%) |
| AED 100,000,000 | AED 5,000,000 (5% = the AED 5m cap) |
| AED 200,000,000+ | AED 5,000,000 (capped, no longer 5%) |
Once total revenue passes AED 100 million, 5% of revenue would exceed AED 5 million — so the flat AED 5 million cap becomes the binding limit, not the percentage.
It's a revenue test, not a profit test
This is the detail that catches businesses out: the calculation uses gross non-qualifying revenue against total revenue, regardless of margin. A business thinking in terms of profit can easily underestimate how close it is to the threshold.
What happens if you breach it
Breaching the threshold means losing QFZP status for the current tax period and the following 4 tax periods — 5 years in total. During that entire window, all income is taxed at 9%, not just the excess non-qualifying portion. It's a cliff-edge, not a sliding scale.
What counts as non-qualifying revenue
Revenue from excluded activities, or from activities that aren't on the qualifying list where the counterparty is a non-free-zone person. Common examples include most B2C sales, banking, insurance, and certain mainland transactions outside a qualifying activity.
This is only one condition
Staying within the De Minimis threshold doesn't guarantee QFZP status on its own. You also need adequate substance in the free zone (assets, qualified employees, operating expenditure), income genuinely from qualifying activities, and compliance with transfer pricing rules — worth checking against the Transfer Pricing Threshold Checker separately.
Check your own position
The Free Zone Qualifying Income Checker takes your total revenue and non-qualifying revenue and shows exactly where you sit against the applicable threshold, and by how much.