Key Takeaways
4 insights · 8 min readSoftware development is not on the QFZP list of “qualifying activities” — so it is only 0% corporate tax when the customer is a Free Zone Person who is the beneficial recipient, not when it is sold to a mainland or overseas customer.
Development income from overseas or mainland B2B customers is non-qualifying, and runs against the de minimis ceiling — the lower of 5% of total revenue or AED 5 million.
Breach the de minimis and you lose QFZP status entirely — 9% on all taxable income, for that year and the next four — not just on the non-qualifying slice.
A software company whose main revenue is international or mainland B2B usually cannot be a QFZP — confirm it before you file, in the corporate tax return, so you track your revenue the right way.
Software development is not a “qualifying activity” for QFZP, so a free-zone software company earns 0% only on development sold to another Free Zone Person who uses it in their own business. Sales to overseas or mainland customers are non-qualifying and count against the de minimis ceiling — the lower of 5% of revenue or AED 5 million. Exceed it and the 0% rate is lost for five years.
Is software development a “qualifying activity”?
No — and that single fact reshapes the whole QFZP question for a software business. The list of qualifying activities covers things like manufacturing, distribution from a designated zone, logistics, fund and wealth management, headquarter and treasury services. Software and IT development are not on it. So a software company cannot earn 0% simply by performing a qualifying activity, the way a logistics or manufacturing business can.
That leaves only one route to 0% for development income: the other limb of qualifying income — a transaction with a Free Zone Person who is the beneficial recipient of the service. In plain terms, your 0% rate depends on who your customer is, not on what you do. The corporate tax return is where that is tested, so the classification has to be right before you file.
“Free zone” does not mean “0% on everything”
The most expensive assumption a free-zone software founder makes is that all their revenue is 0%. Development sold to overseas or mainland customers is non-qualifying, and if it tips over the de minimis ceiling, the company loses the 0% rate on all its income for five years. Get your QFZP position assessed →
Expert Tip
The beneficial-recipient test matters as much as the free-zone label. Invoicing another free-zone company does not create qualifying income if the real benefit of your software flows to a mainland group company or an overseas end-user — the free-zone customer has to use and enjoy it itself.
Qualifying or not — by who your customer is
| Your software is sold to… | Treatment | Why |
|---|---|---|
| Software for another free-zone company, used in that company’s own business | Qualifying (0%) | Transaction with a Free Zone Person as beneficial recipient |
| Software for an overseas B2B customer | Non-qualifying (counts to de minimis) | Not a free-zone transaction, and software dev is not a listed qualifying activity |
| Software for a UAE mainland customer | Non-qualifying (counts to de minimis) | Same reason — neither a free-zone transaction nor a qualifying activity |
| Software to a free-zone company that resells it on | Likely non-qualifying | The free-zone customer is not the beneficial recipient |
Not sure how much of your revenue is qualifying?
Send us your customer and revenue breakdown and we’ll run the de minimis test, confirm whether you can hold QFZP status, and set up the revenue tracking — QFZP assessment from AED 1,500.
The de minimis trap for software exporters
This is where software companies that sell abroad come unstuck. Work through what the de minimis rule actually means for you:
- Add up your non-qualifying revenue — all development sold to overseas and mainland customers, plus any free-zone sales failing the beneficial-recipient test.
- Compare it to the ceiling — non-qualifying revenue must stay within the lower of 5% of total revenue or AED 5 million — for most companies, the 5% figure binds.
- See where a software exporter lands — a company whose main revenue is international B2B software is nearly all non-qualifying, so it blows the 5% ceiling and cannot be a QFZP.
- Understand the penalty — breaching de minimis loses QFZP status for the current year and the next four — 9% on all taxable income, not just the non-qualifying part.
What a QFZP software company must keep
• A revenue register — every invoice tagged qualifying or non-qualifying, with the customer type and beneficial-recipient status.
• Real free-zone substance — premises, UAE payroll and the people doing the development work, proportionate to the income.
• Audited financial statements — mandatory for all QFZPs regardless of revenue (Ministerial Decision 84/2025).
What if your software company doesn’t qualify?
Not qualifying is not a disaster — it just means a different, and often still low, tax outcome. A free-zone company that is not a QFZP is taxed under the ordinary regime: 0% on taxable income up to AED 375,000 and 9% above it. And if your revenue is within AED 3,000,000, you can elect Small Business Relief and pay nil corporate tax while it applies, regardless of QFZP status. So an international B2B software company that cannot clear the de minimis test often still pays little or no corporate tax — it simply does so as an ordinary taxpayer, not a QFZP. [VERIFY Small Business Relief eligibility and the current QFZP rules for your company.]
The point is to decide the position before you file, with your revenue classified correctly, rather than claim 0% and have it unwound later. Our team runs a condition-by-condition QFZP assessment (from AED 1,500), confirms whether you can hold the rate, and files the corporate tax return on the right basis — with audited financial statements where QFZP status is claimed.
Fastlane Tax Team
FTA-registered tax agents with 4,000+ corporate tax and VAT filings across the UAE mainland and 40+ free zones. Every guide is reviewed against current FTA regulations before publishing.
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