Free Zone companies can benefit from 0% Corporate Tax if classified as QFZP (Qualifying Free Zone Person).
However, in 2025, the rules are stricter than ever.
Who Is a QFZP?
It company that:
- Maintains adequate economic substance
- Earns qualifying income
- Notifies FTA properly
- Prepares audited financial statements
- Not voluntarily electing for normal CT
What Is Qualifying Income?
✔ Transactions with other it entities
✔ Export of goods/services outside UAE
✔ Passive income (dividends, royalties, interest)
✔ Certain regulated activities (subject to conditions)
What Is Disqualifying Income?
UAE mainland income (non-qualifying)
Income without economic substance
Income from excluded activities (real estate for individuals, etc.)
Disqualifying income = Fully taxed at 9%.
Economic Substance Requirements
- Real office space
- Adequate employees
- Directors based in UAE
- Board meetings in UAE
- CIGAs performed in Free Zone
Mandatory Compliance for QFZPs
- Annual CT filing
- Audited FS
- Transfer Pricing documentation
- Substance test evidence
- Qualifying income disclosure
FTA Risks in 2025
FTA checks:
- Mainland dealings
- Substance
- Internal transactions
- Service contracts
- TP benchmarking
Conclusion
Free Zones remain tax attractive, but only for companies that satisfy all QFZP conditions. Compliance is critical to maintain the 0% tax.
Call to Action
Advanced AnalytIQ helps Free Zone companies maintain QFZP status with full CT compliance.
Contact us to secure your 0% tax eligibility for 2025.