The Complete Guide to QFZP in DMCC: What "0% Corporate Tax" Really Means
We explain what "0% corporate tax in free zones" actually means, built around the Qualifying Free Zone Person (QFZP) regime.
"UAE free zones mean 0% corporate tax." The phrase has taken on a life of its own, and we regularly see companies considering expansion without an accurate understanding of what it actually means. For large and listed companies in particular, a misunderstanding here can turn into tax risk later. This article explains how tax really works in DMCC, built around the Qualifying Free Zone Person (QFZP) regime.
This article is part of our series on the complete guide to DMCC.
The starting point: the UAE does have corporate tax
The UAE introduced corporate tax through Federal Decree-Law No. 47 of 2022, applying to financial years beginning on or after 1 June 2023. Every free zone company, including those in DMCC, is required to register for corporate tax, even if its effective rate is 0%. Failing to register attracts a fixed penalty of AED 10,000, so this is the first point to secure.
What is a Qualifying Free Zone Person?
A company that meets the QFZP conditions pays 0% corporate tax on qualifying income. Income that does not qualify (non-qualifying income) is taxed at 9%.
The main conditions for QFZP status are:
- Adequate substance in the free zone (employees, premises and decision-making functions)
- Deriving qualifying income
- Preparing audited financial statements
- Complying with transfer pricing requirements
Watch the de minimis test. If non-qualifying revenue exceeds 5% of total revenue or AED 5 million, whichever is lower, the company loses QFZP status for that tax period and the following four, and all of its income becomes taxable at 9%. A temporary increase in non-qualifying revenue can therefore cost the tax benefit for years.
The scope of "qualifying income" needs care
Trading in qualifying commodities is a qualifying activity, but not unconditionally. The commodity must have a quoted price on a recognised commodity exchange or from a recognised price reporting agency. The scope was broadened in 2025: it is no longer limited to physical trading in raw form and now extends to related derivatives used for hedging and associated structured financing. Even so, not every transaction conducted through a DMCC entity automatically qualifies.
In addition, sales to mainland customers are, as a rule, treated as non-qualifying income and taxed at 9%. If a DMCC company expects to trade frequently with mainland UAE businesses, its business model needs to be designed with this in mind.
Ministerial Decision No. 229 of 2025, issued on 28 August 2025, replaced Ministerial Decision No. 265 of 2023 and applies retroactively from 1 June 2023. It expanded the list of qualifying activities, and Ministerial Decision No. 230 of 2025 introduced recognised price reporting agencies for commodity pricing. Because the rules continue to evolve, always check the latest provisions.
The DMTT: a particular concern for large groups
Separately from the QFZP regime, the UAE has introduced the Domestic Minimum Top-up Tax (DMTT).
- Scope: multinational groups with consolidated global revenue above EUR 750 million
- Rate: 15%
- Effective: from 1 January 2025
The DMTT follows the OECD-led global minimum tax framework, commonly known as Pillar Two. Even if a company benefits from a 0% or 9% rate in the UAE, a group above the revenue threshold is subject to a 15% minimum tax.
Any large listed group considering DMCC must assess the impact of the DMTT on a case-by-case basis. Planning an expansion on the simple assumption that "free zone means no corporate tax" risks misjudging the actual tax burden.
At a glance: accuracy builds trust
| Regime | Applies to | Rate |
|---|---|---|
| QFZP — qualifying income | Qualifying income of companies meeting the substance, audit, transfer pricing and other conditions | 0% |
| QFZP — non-qualifying income | Non-qualifying income, such as sales to the mainland | 9% |
| Standard corporate tax | All taxable income above AED 375,000 where the QFZP conditions are not met | 9% |
| DMTT | Multinational groups with consolidated revenue above EUR 750 million | 15% |
Rather than deciding on expansion because of the appeal of "0%", the key to a stable long-term tax position is to understand precisely which category your business structure falls into, and then to put the substance requirements and transfer pricing documentation in place.
How Biz Easy supports you
Biz Easy does not stop at company formation. We are an advisory firm whose strength is seeing the work through — from strategy and company setup to visas, bank account opening, and accounting, tax and HR operations after incorporation. We offer Big Four-level expertise at a more accessible cost.
Since our founding in 2021, we have supported more than 200 companies expanding into the Middle East and Africa. Our dedicated accounting and tax team handles complex tax questions for large groups, from putting the QFZP conditions in place to analysing the impact of the DMTT.
DMCC's "0% corporate tax" applies only to qualifying income of a company that meets the QFZP conditions; non-qualifying income is taxed at 9%. Groups with consolidated revenue above EUR 750 million may also be subject to the 15% DMTT. An accurate understanding, combined with proper substance and transfer pricing documentation, is the key to a stable long-term tax position.
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