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Quick answer
No — a Qualifying Free Zone Person does not automatically pay 9% on income that isn't from a Qualifying Activity. Non-qualifying revenue that stays inside the de minimis limit — the lower of 5% of total revenue or AED 5,000,000 — becomes Qualifying Income taxed at 0%. Breach the limit and you don't pay 9% on that slice: you cease to be a QFZP for that tax period and the next four. Only four categories are 9% regardless: domestic PE, foreign PE, immovable property and non-qualifying IP income.
This is the single most common misreading of the free zone regime we deal with, and it comes from a reasonable instinct: two rates exist, so surely income splits between them. It doesn't. The de minimis test is a pass/fail gate, not a proportional carve-out, and the "always 9%" list is much shorter than most people assume.
Why this comes up in practice
The conversation, almost word for word
A free zone client has AED 40 million of clean operating revenue from a listed Qualifying Activity and AED 800,000 of interest or other income that doesn't fit the list. The question arrives as: "So we're 0% on the 40 million and 9% on the 800,000?"
The answer is that the AED 800,000 is taxed at 0%, because it is inside the de minimis limit and therefore becomes Qualifying Income. The follow-up objection is always the same — but the rate card says taxable income is 9% — and it's a fair objection, because the rate card is right. What's wrong is the assumption about what lands on the "taxable income" line.
AED 40,800,000
AED 800,000
AED 2,040,000
Pass → 0% on all of it
Illustrative figures. Had the non-qualifying revenue been AED 2,100,000, the result would not be 9% on AED 60,000 — it would be QFZP status lost for five tax periods.
What the law actually says
Under Cabinet Decision 100 of 2023, Qualifying Income includes income from transactions with Free Zone Persons (other than Excluded Activities), income from Qualifying Activities with non-Free Zone Persons, and any other income, provided the de minimis requirements are met. Ministerial Decision 229 of 2025 — which repealed MD 265 of 2023 and applies retroactively from 1 June 2023 — sets the de minimis limit at Article 3: non-qualifying revenue not exceeding 5% of total revenue or AED 5,000,000, whichever is lower. Article 5(2) of the same decision is the consequence of failing: the person ceases to be a QFZP from the beginning of that tax period and for the subsequent four tax periods.
The three buckets
Every dirham of a QFZP's income lands in one of three places
| Bucket | What it is, and what happens to it |
|---|---|
| Qualifying Income 0% | Income from transactions with Free Zone Persons (excluding Excluded Activities), and income from the Qualifying Activities listed in MD 229 Article 2(1) with anyone — manufacturing, processing, qualifying commodities trading, holding shares and securities for investment, ships, reinsurance, fund management, wealth and investment management, headquarters services, treasury and financing to related parties or for its own account, aircraft financing and leasing, distribution from a Designated Zone, logistics services, and activities ancillary to these. |
| Other income 0% if de minimis passes | Everything else — Excluded Activities, non-qualifying activities with non-Free Zone Persons, transactions with a Free Zone Person who isn't the beneficial recipient. This is non-qualifying revenue. Inside the limit, it becomes Qualifying Income and is taxed at 0%. Outside the limit, QFZP status goes for five tax periods. |
| Taxable Income 9% always | Income attributable to a Domestic Permanent Establishment, a Foreign Permanent Establishment, immovable property (non-commercial property anywhere, or commercial property in a free zone let or sold to a non-Free Zone Person), and non-qualifying IP income. Taxed at 9% no matter how small, and no 0% band on the first AED 375,000. |
The detail almost everyone misses about bucket three
Revenue in the "always 9%" bucket is excluded from both sides of the de minimis ratio — Cabinet Decision 100 of 2023, Article 4(3) keeps PE revenue, the relevant immovable property revenue and non-qualifying IP revenue out of both non-qualifying revenue and total revenue. So a PE or a rental stream does not blow your de minimis test. It just gets taxed at 9% on its own, alongside your 0% qualifying income. Two separate questions, two separate answers.
Nithin's professional judgement
How I work a QFZP return
What I check first
Not the rate. The buckets. I take the revenue and other income lines one at a time and ask which of the three each one belongs to, and I do the "always 9%" test first — is there a domestic or foreign PE, immovable property, or IP income? That's the only part where size is irrelevant, so it's the part worth clearing before anything else.
What I do next
For anything that looks non-qualifying, I go back to the MD 229 Article 2(1) list before conceding the point, because the list is wider than people remember. Interest on the company's own cash may sit under treasury and financing services for its own account, which expressly includes cash and liquidity management. A share portfolio may sit under holding of shares and other securities for investment purposes — but only where they've been held for an uninterrupted period of at least 12 months, so a portfolio built up during the year doesn't qualify on that limb. Only what survives that pass goes into the de minimis numerator.
What I avoid
- Booking 9% on the small slice "to be safe." It isn't safe, it's just wrong — and it is wrong in the expensive direction, because it pays tax that isn't due while leaving the real exposure untested.
- Treating de minimis as a tax calculation. It's a status test. The output is pass or fail, not an amount.
- Testing the balance sheet instead of the revenue. A AED 30 million investment portfolio is not AED 30 million of non-qualifying revenue. What enters the ratio is the income it produced in the period.
Technically possible vs practically advisable
Technically, you can run right up to the de minimis line. Practically I don't like sitting near it, because the penalty for crossing is not proportionate to the breach — a few thousand dirhams over the limit costs you the regime for five tax periods, current year plus four. Where a client is close, the conversation is about the shape of next year's income, not about the current return.
What clients focus on incorrectly
The 2% of revenue that isn't qualifying — usually the smallest and least risky number on the page. What deserves the attention is whether any line belongs in bucket three, because that one is 9% at any size, and whether the de minimis headroom is comfortable for next year.
Field note
From a recent return
Anonymised — free zone shipping and logistics company, FY2025
Operating revenue sat squarely in the Qualifying Activities list: ship management and operation, and freight brokerage, which fall under MD 229 Article 2(1)(e) and 2(1)(m). Alongside it was roughly AED 750,000 of other income, and a large investment balance that had gone from nil at the start of the year to eight figures at the end.
The internal debate on the file was whether that other income was 9%. It wasn't. Against total revenue in the tens of millions, the de minimis limit was 5% of total revenue, comfortably above AED 750,000 — so the income fell into "any other income", the test passed, and it went on the 0% line.
The 12-month holding rule mattered too: because the portfolio was built during the year, the shares-and-securities limb wasn't available on its own merits, so the income from it was treated as non-qualifying revenue and picked up by de minimis. And the point we kept pushing on was not the AED 750,000 at all — it was whether any part of the investment income was really PE or property income, because that slice would be 9% regardless of how small it was. On this file, the ship carve-out also needed confirming: MD 229 Article 2(3)(e) excludes ships used for local transportation, leisure or recreation, or as floating hotels, restaurants or casinos.
Facts that move the answer
What could change the treatment
- A domestic PE. Mainland activity conducted through the free zone entity can create a Domestic PE, and that income is 9% regardless of the de minimis position.
- Property income. Non-commercial immovable property anywhere, and commercial property in a free zone let to a non-Free Zone Person, are 9% at any size.
- IP income. Income from IP that isn't Qualifying Intellectual Property under the nexus calculation in MD 229 Article 4 is 9%, and sits outside the de minimis ratio.
- The beneficial recipient test. Revenue from a Free Zone Person who is not the beneficial recipient of the goods or services is non-qualifying revenue, even though the customer is in a free zone.
- The other QFZP conditions. De minimis is one condition among several — adequate substance, audited financial statements under Ministerial Decision 84 of 2025, transfer pricing compliance. Fail any of them and the five-period consequence follows just the same.
- Small Business Relief is not an alternative. A QFZP cannot elect Small Business Relief, so "we'll just take SBR instead" is not a fallback if the regime is lost.
Where this fits
How we handle QFZP returns
Testing qualifying income, de minimis and the always-9% categories is part of our Corporate Tax return work — we map every revenue and other-income line to a bucket, document which limb of MD 229 Article 2 each qualifying stream sits under, and keep the de minimis working paper with the return rather than reconstructing it if the FTA asks. Where a client is close to the limit, we flag it for next year while there is still time to do something about it.
Fastlane is an FTA-registered Tax Agent (TRN 104218042400003) and a Ministry of Economy-approved auditor. We've supported more than 1,500 UAE Corporate Tax filings and 250+ audit engagements, and clients rate us 4.9★ across 200+ Google reviews.
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FAQ
Does a QFZP always pay 9% on income that isn't from a Qualifying Activity?
No. Non-qualifying revenue that stays within the de minimis limit — the lower of 5% of total revenue or AED 5,000,000 — falls into the "any other income" category of Qualifying Income under Cabinet Decision 100 of 2023 and is taxed at 0%. The 9% rate applies to the specific categories treated as Taxable Income: domestic PE, foreign PE, immovable property and non-qualifying IP income.
What is the de minimis limit for a Qualifying Free Zone Person?
Under Article 3 of Ministerial Decision 229 of 2025, the de minimis requirement is met where non-qualifying revenue in a tax period does not exceed 5% of total revenue or AED 5,000,000, whichever is lower. Ministerial Decision 229 replaced Ministerial Decision 265 of 2023 and applies retroactively from 1 June 2023.
What happens if we breach the de minimis threshold?
You do not simply pay 9% on the excess. Under Article 5(2) of Ministerial Decision 229 of 2025, the person ceases to be a Qualifying Free Zone Person from the beginning of that tax period and for the subsequent four tax periods — so the whole of the income, including what would have been qualifying, is taxed at the standard rate for five periods.
Which income is taxed at 9% for a QFZP no matter how small it is?
Income attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment, income from immovable property (non-commercial property, and commercial property in a free zone transacted with a non-Free Zone Person), and income from intellectual property that is not Qualifying Intellectual Property. These are treated as Taxable Income and taxed at 9% with no 0% band on the first AED 375,000.
Does permanent establishment or rental income break our de minimis test?
No. Article 4(3) of Cabinet Decision 100 of 2023 excludes revenue attributable to a domestic or foreign permanent establishment, the relevant immovable property revenue and non-qualifying IP revenue from both non-qualifying revenue and total revenue. It is taxed at 9% separately, but it does not enter the de minimis ratio on either side.
Is investment income qualifying or non-qualifying for a QFZP?
"Investment income" is not itself a category in the law — what matters is what the investment is. Holding shares and other securities for investment purposes is a Qualifying Activity under MD 229 Article 2(1)(d), but only where they are held for an uninterrupted period of at least 12 months. Interest on the company's own cash may fall under treasury and financing services for its own account. Anything that fails both is non-qualifying revenue and is tested against de minimis.
Can a QFZP claim Small Business Relief instead?
No. A Qualifying Free Zone Person cannot elect Small Business Relief, so it is not available as a fallback if the free zone regime is lost. That is one reason breaching de minimis is more expensive than the size of the breach suggests.
General guidance on the Qualifying Free Zone Person regime and the de minimis requirement, current as of September 2026; not tax advice. Based on Federal Decree-Law 47 of 2022, Cabinet Decision 100 of 2023 on Determining Qualifying Income, and Ministerial Decision 229 of 2025 on Qualifying Activities and Excluded Activities (issued 28 August 2025, effective 1 June 2023, repealing Ministerial Decision 265 of 2023). Treatment depends on the facts of each revenue stream — confirm your position with a qualified tax adviser before filing.