Published by ARQAAM · Updated 25 September 2026
If you run a business in a UAE Free Zone, you've probably heard whispers about new tax rules that came out in 2025. Maybe you're wondering if you still qualify for that 0% corporate tax rate everyone talks about. Or perhaps you're not even sure what "QFZP" means and why everyone keeps using the acronym.
Don't worry – you're not alone. The UAE's Free Zone tax system can feel unnecessarily complicated, especially when the government releases new rules with names like "Ministerial Decision No. 229 of 2025." But here's the thing: these updates actually matter, and some of them might work in your favor.
Let's break it down in plain English.
The Big Question: Do You Still Get 0% Tax?
Here's what most Free Zone business owners want to know: Can I still pay 0% corporate tax on my income?
The short answer is yes – if you qualify. And whether you qualify depends on something called your "QFZP status." QFZP stands for Qualifying Free Zone Person, which is just a fancy way of saying "a Free Zone business that meets specific requirements to get the 0% tax rate."
Think of it like this: having a Free Zone license is like having a VIP pass to a club. But to actually get the free drinks (in this case, 0% tax), you need to follow the house rules. The 2025 updates changed some of those house rules – some got easier, some got stricter, and some just got clearer.
What Actually Changed 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.
The updates did three main things. First, they expanded the list of business activities that qualify for the 0% rate. Second, they clarified some gray areas that were causing confusion. And third, they made it crystal clear that every Free Zone business claiming the 0% rate needs audited financial statements – no exceptions.
Let's walk through what this means for your business.
The Expanded Activities: Good News for Many Businesses
One of the biggest changes is that more types of businesses can now qualify for the 0% rate. This is particularly good news if you're in commodity trading or if you manage your company's cash.
Commodity Traders Got a Big Win
If your business trades commodities – things like metals, oil, agricultural products, or chemicals – the 2025 rules significantly broadened what counts as "qualifying" trading activity. The government added industrial chemicals, environmental commodities like carbon credits, and even the by-products of commodity production to the approved list.
But here's where it gets interesting. The rules also now recognize something called "structured commodity financing." This includes prepayment deals, factoring arrangements, and various other financing structures that commodity traders commonly use. Previously, there was ambiguity about whether these activities qualified. Now it's clear: they do.
There's a catch, though. If 51% or more of your revenue comes from warehousing, logistics, distribution, or inventory management – basically the supporting services around commodity trading rather than the trading itself – you won't qualify under the commodity trading category. The government wants to make sure this benefit goes to actual traders, not logistics companies.
Cash Management Just Got Clearer
Here's something that confused a lot of business owners: what happens to the interest your company earns on its bank deposits or short-term investments?
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.
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.
If You Distribute Products in Free Zones
There's also good news if your business distributes goods within Designated Zones. The old rules required you to sell only to resellers if you wanted that income to qualify for 0% tax. The 2025 update changed this – you can now also sell to public benefit entities, even if they're buying for their own use rather than reselling.
This might sound niche, but for businesses supplying educational institutions, healthcare facilities, or charitable organizations in Free Zones, it's a meaningful change.
The One Rule That Trips Up Most Businesses
Now let's talk about the rule that causes the most headaches: the 5% de minimis test. This is where many Free Zone businesses accidentally lose their 0% tax status without even realizing it.
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.
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.
For example, revenue counted for the test of AED 120 million gives a 5% figure of AED 6 million, so the AED 5 million cap applies. Non-qualifying revenue of AED 5.1 million exceeds it. This does not determine taxable profit or the tax bill.
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.
This is why monitoring your non-qualifying revenue throughout the year is crucial. One large contract with the wrong type of customer or one business activity that doesn't quite fit the qualifying criteria can push you over the edge.
The Audit Requirement: No More Wiggle Room
Here's something that affects every single Free Zone business claiming QFZP status: you must have audited financial statements. Not "recommended." Not "strongly advised." Required.
This requirement applies to all tax periods starting from June 1, 2023. Even if you're a small business with minimal transactions, even if you have immaculate bookkeeping, even if you've never needed an audit before – if you want the 0% tax rate, you need audited statements.
The logic behind this is actually reasonable from the government's perspective. Without audited statements, it's too easy for businesses to blur the lines between qualifying and non-qualifying revenue. Audits provide a clear, professional verification that your income classifications are accurate.
Budget for an annual audit. Fees depend on scope and complexity; obtain a quotation from the auditor.
What You Need to Do Right Now
So what should you actually do with all this information? Here are the practical steps every Free Zone business should take.
First, review your business activities against the updated qualifying activities list. The 2025 changes might mean activities you thought didn't qualify actually do now. Or vice versa – some activities that seemed fine might fall outside the qualifying criteria under the stricter definitions.
Second, calculate your non-qualifying revenue as a percentage of your total revenue. If you're anywhere close to 5%, or if you're approaching the AED 5 million cap, you need to implement quarterly monitoring. Waiting until year-end to discover you're over the limit is too late.
Third, if you haven't already arranged for audited financial statements for periods starting June 2023, you need to do this immediately. Engage a licensed auditor, make sure your books are audit-ready, and factor the ongoing cost into your business planning.
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.
The Substance Requirements Everyone Forgets About
Here's something that doesn't get enough attention: substance requirements. Just meeting the activity and income tests isn't enough. You also need to demonstrate that your business has genuine substance in the UAE.
What does substance mean in practice? It means having real employees in the UAE doing real work. It means having physical office space, not just a virtual address. It means having operating expenses that make sense for the kind of business you're running.
A lot of Free Zone businesses assume that because they have a license and an office address, they automatically meet substance requirements. But the tax authority can and will look deeper. If you're claiming to run a manufacturing operation but you have no factory equipment, no manufacturing employees, and no production costs, that's going to raise red flags.
Substance requirements vary depending on your business activity. A trading company needs different substance than a manufacturing operation or an investment holding company. The key is making sure your actual business operations match what you're claiming on your tax return.
Common Mistakes to Avoid
Let me share some mistakes we see all the time when working with Free Zone businesses.
The first mistake is assuming that being in a Free Zone automatically means you get the 0% tax rate. It doesn't. Free Zone registration is just the starting point – you still need to qualify as a QFZP by meeting all the specific requirements.
The second mistake is not tracking non-qualifying revenue throughout the year. Many businesses only look at this when they're preparing their tax return, by which point it's too late to do anything about it if they've exceeded the limit.
The third mistake is not maintaining proper documentation. The tax authority isn't just going to take your word that all your income qualifies. You need contracts, invoices, and evidence that transactions were conducted with the right counterparties and for the right purposes.
The fourth mistake is DIY-ing something this complex without professional help. Look, we're obviously biased because we're an accounting firm. But the reality is that QFZP compliance involves multiple moving parts – income classification, substance requirements, de minimis calculations, transfer pricing for related party transactions, and more. A small mistake in any of these areas can be expensive.
What Happens If You Get It Wrong?
Let's talk about the consequences of non-compliance, because they're significant.
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.
Monitor official Ministry of Finance and FTA updates and retain evidence supporting the tax treatment in each return.
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.
Looking Ahead: What to Expect
The UAE's corporate tax system is still relatively new, and we should expect continued refinement of the rules. The 2025 updates won't be the last changes to the QFZP regime.
Monitor official Ministry of Finance and FTA updates and retain evidence supporting the tax treatment in each return.
Monitor official Ministry of Finance and FTA updates and retain evidence supporting the tax treatment in each return.
The Bottom Line
The 2025 QFZP updates brought both opportunities and obligations. More businesses might now qualify for the 0% rate thanks to expanded activity definitions. But the compliance requirements – particularly around audited statements and substance – are now clearly defined and mandatory.
If you're running a Free Zone business, the worst thing you can do is ignore these rules and hope for the best. Take the time to understand whether you qualify, make sure you're meeting all the requirements, and get professional help if you need it.
The 0% corporate tax rate is one of the most valuable benefits the UAE offers to businesses. But it's not automatic, and it's not guaranteed. You need to actively maintain your qualification for it.
Need Help with QFZP Compliance?
Figuring out whether your Free Zone business qualifies for the 0% tax rate shouldn't keep you up at night. At ARQAAM, we specialize in helping Free Zone businesses navigate corporate tax compliance – from QFZP status assessment to filing returns to coordinating audits.
Contact ARQAAM for a scope and quotation tailored to your activities, records and reporting requirements.
What we help with:
- Determining if you qualify as a QFZP
- Classifying your income correctly
- Monitoring your de minimis threshold
- Maintaining substance requirements
- Coordinating audits and preparing financial statements
- Filing corporate tax returns accurately and on time
Ready to make sure your Free Zone business is compliant? Book a free consultation with our tax specialists.
📞 Call: +971 58 836 7076 🌐 Visit: arqaamuae.com 📧 Email: info@arqaamuae.com
We'll review your situation, explain your options, and give you a clear action plan – with no obligation.
About ARQAAM
ARQAAM provides accounting, bookkeeping, VAT and corporate tax support for businesses in the UAE.
Official sources
- Ministry of Finance — 2025 updates
- Ministerial Decision 229 of 2025
- Cabinet Decision 100 of 2023
- Audited statements — Decision 84 of 2025
- FTA — Corporate tax rates
General information, not advice for a specific tax position. Treatment depends on the facts and rules in force.
