UAE QFZP Updates: 2025 Overview

Published by ARQAAM · Updated 25 September 2026

If you operate a business in a UAE Free Zone, understanding the Qualifying Free Zone Person (QFZP) regime is critical to maintaining your 0% corporate tax rate. In August 2025, the UAE Ministry of Finance introduced major updates that expand qualifying activities, clarify compliance requirements, and impose stricter documentation standards.

This guide breaks down everything you need to know about the 2025 QFZP updates – from new qualifying activities to mandatory audit requirements – so you can stay compliant and protect your tax benefits.

What is a Qualifying Free Zone Person (QFZP)?

Under the UAE Corporate Tax Law, free zone entities that qualify as QFZPs can access a 0% corporate tax rate on qualifying income – one of the most powerful tax incentives in the region.

Eligibility requires all applicable conditions, including:

QFZP Requirements Checklist:

Important distinction: Unlike mainland businesses that benefit from a 0% rate on the first AED 375,000 of taxable income, QFZPs do not benefit from this small business threshold. Their 0% rate applies only to qualifying income.

Major QFZP Updates in 2025

The Ministry of Finance announced Decisions 229 and 230 of 2025 on 3 September 2025. Decision 229 replaced Decision 265 of 2023 and applies from 1 June 2023.

Critical Retroactive Application

Both decisions are effective retroactively from 1 June 2023. This means:

Action Required: Free Zone businesses should review their first tax returns (filed or pending) against the new qualifying activities list and consider amendments if beneficial.

New Qualifying Activities List

Ministerial Decision 229 of 2025 repeals earlier MD 265 of 2023 and significantly expands the list of qualifying activities.

1. Trading of Qualifying Commodities (Major Expansion)

The 2025 updates dramatically broaden what qualifies as commodity trading:

Expanded Commodity Categories:

New Structured Financing Activities:

The decision now expressly includes associated structured commodity financing activity, such as prepayments, factoring, forfaiting, countertrade, warehouse-receipt financing, export receivable financing, project finance, Islamic trade finance and streaming financing.

The 51% Revenue Test - Critical Limitation:

A Qualifying Free Zone Person will be excluded from the 0% rate on qualifying commodity trading if 51% or more of its revenue for the relevant tax period is derived from distribution, warehousing, logistics or inventory-management functions.

What this means: If your business generates most of its revenue from logistics/storage rather than actual commodity trading, you won't qualify under this category.

Pricing Evidence Made Flexible:

A commodity may qualify as a Qualifying Commodity provided that a Quoted Price exists for that commodity or for a Related Commodity. Prices can now be evidenced through:

2. Treasury and Financing Services - "Own Account" Clarification

Big news for cash management: MD No. 229 of 2025 relabels this qualifying activity to make explicit that a Qualifying Free Zone Person can perform treasury and financing services "to Related Parties or for its own account".

Practical impact:

The decision includes treasury and financing services for related parties or the entity’s own account. Check the actual activity, legal definitions and all QFZP conditions; interest income does not qualify automatically.

3. Distribution in Designated Zones - Public Benefit Entity Addition

The new text introduces an alternative by recognizing supplies to a public benefit entity as qualifying.

Key change: The public benefit entity doesn't need to be a "Qualifying Public Benefit Entity" under Article 9, and supplies can be for the entity's own use (not just for resale).

4. Complete List of Qualifying Activities

Income from the following activities qualifies for the 0% rate (when conducted with appropriate counterparties):

Examples of qualifying activities (conditions apply)

Manufacturing or processing of goods/materials
Holding and managing shares/securities (with conditions)
Logistics services (conditions apply)
Fund management services
Wealth/investment management
Headquarter services to related parties
Treasury/financing services to related parties or own account
Financing/leasing of aircraft
Reinsurance services
Operation of ships in international waters
Trading of qualifying commodities
Distribution of goods in/from Designated Zones
Ancillary activities supporting the above

Counterparty and special-income rules

The 5% De Minimis Rule Explained

This is where many businesses lose their QFZP status without realizing it.

How the De Minimis Test Works

The de minimis test uses non-qualifying revenue, not profit. The limit is the lower of 5% of total revenue or AED 5 million, applying the revenue exclusions in Cabinet Decision 100 of 2023.

Real-World Examples

Example 1: Small Free Zone Business

Example 2: Large Free Zone Business

Notice: the 5% test would produce a threshold of AED 6M — but the cap at AED 5M takes precedence.

Failure of QFZP conditions can remove qualifying status from the start of the affected tax period and for the next four tax periods. Standard corporate tax rules then apply to taxable income, not turnover, considering the ordinary AED 375,000 threshold and other applicable rules.

Key Takeaway

For larger Free Zone businesses, the AED 5 million cap is almost always the binding constraint. Even if your non-qualifying revenue represents less than 5% of total revenue, exceeding AED 5 million disqualifies you entirely.

Mandatory Audit Requirements

No Exemptions - All QFZPs Must Audit

Per Ministerial Decision No. 84 of 2025, every entity claiming QFZP status must prepare audited financial statements.

Application timeline:

While MD 84 was made applicable only to FYs commencing on or after 1 January 2025, the QFZPs are required to prepare audited financial statements for all tax periods commencing on or after 1 June 2023

What this means:

Budget for an annual audit. Fees depend on scope and complexity; obtain a quotation from the auditor.

What Free Zone Businesses Must Do Now

Immediate Action Steps:

1. Review Your Qualifying Activities

Taxpayers should review existing activities against the expanded Qualifying Activity list. It is expected that more Free Zone businesses may now qualify as Qualifying Free Zone Persons.

Questions to ask:

2. Reassess Your First Tax Returns

Since MD 229 and MD 230 apply from 1 June 2023, taxpayers may need to reassess the position for their first tax returns.

Review affected returns with a qualified adviser. The correction or disclosure procedure depends on the facts and applicable tax procedures; a refund or penalty reduction is not automatic.

3. Test Your De Minimis Compliance

Calculate your non-qualifying revenue as a percentage of total revenue:

4. Arrange Audit Services

If you haven't already obtained audited financial statements for tax periods starting June 1, 2023:

5. Document Everything

Maintain comprehensive documentation for:

Common QFZP Mistakes to Avoid

Mistake #1: Assuming Free Zone Registration = QFZP Status

Free Zone registration alone does not establish eligibility. Assess all applicable conditions for the relevant tax period.

Mistake #2: Ignoring the De Minimis Test

The de minimis calculation catches many businesses off guard. One large contract with a mainland customer could push you over the limit and cost you QFZP status for the entire year.

Mistake #3: Not Maintaining Adequate Substance

Having a virtual office isn't enough. You need:

Mistake #4: Misclassifying Income

Transactions with a Free Zone Person may qualify if that person is the beneficial recipient and the activity is not excluded. Non-Free Zone transactions generally require a qualifying activity. Separate rules cover permanent establishments, property and intellectual property.

Mistake #5: Failing to Prepare for Audits

QFZPs must prepare and maintain audited financial statements. Decision 84 of 2025 applies to periods beginning on or after 1 January 2025; preceding rules continue for earlier periods. Follow FTA document-submission requirements for the relevant return.

Mistake #6: Not Seeking Professional Guidance

The QFZP regime is complex and the 2025 updates add new layers of nuance. A small misunderstanding can cost hundreds of thousands in unexpected tax liability.

FAQs: UAE QFZP 2025 Updates

Q: Do the 2025 updates apply to tax returns I've already filed?

Review affected returns with a qualified adviser. The correction or disclosure procedure depends on the facts and applicable tax procedures; a refund or penalty reduction is not automatic.

Q: Can I voluntarily opt out of QFZP status?

A Free Zone Person may elect to enter the standard corporate tax regime. Assess the effective period and consequences before making the election; standard rates apply to taxable income, not all receipts.

Q: What happens if I fail the de minimis test mid-year?

Q: Do I need audited statements if I'm a small Free Zone business?

A: Yes. There are no revenue or size exemptions. All QFZPs must maintain audited financial statements from June 1, 2023 onwards.

Q: Which Free Zones are covered by the QFZP regime?

Free Zone and Designated Zone status are different concepts. Check the recognised Free Zone and any Designated Zone conditions required for the activity. A licence alone does not establish QFZP eligibility.

Get Expert QFZP Compliance Support

Navigating the QFZP regime requires specialized expertise. A single mistake in classification, substance assessment, or de minimis calculation can cost your business hundreds of thousands in unexpected tax liability.

ARQAAM specializes in Free Zone corporate tax compliance:

Contact ARQAAM for a scope and quotation tailored to your activities, records and reporting requirements.

Schedule Your Free QFZP Consultation

Don't leave your 0% tax rate to chance. Book a free consultation with our corporate tax specialists to:

📞 Call us: +971 58 836 7076 🌐 Visit: arqaamuae.com 📧 Email: info@arqaamuae.com

About ARQAAM

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Official sources

General information, not advice for a specific tax position. Treatment depends on the facts and rules in force.