Qualifying Free Zone Person: The Conditions That Keep Your Free Zone Profits Tax-Free

Your free-zone licence can remain valid while your qualifying tax status fails. Losing one condition can affect the current tax period and the next four, so the 0% position needs active management after incorporation. ¹

This is general information. Your CPA and counsel confirm the details for your case.

A Free Zone Person isn't automatically a qualifying one

A Free Zone Person is a juridical person incorporated, established or registered in a free zone. Natural persons and unincorporated partnerships don't fall within that definition. Qualifying Free Zone Person status adds tax conditions to the entity's location and registration. ²

The conditions include adequate substance in a free zone, Qualifying Income, no election into the standard regime, compliance with arm's-length rules and transfer-pricing documentation, audited financial statements and the de minimis requirement. They belong on the operating checklist, not just in the incorporation proposal. ²

For audited financial statements, the current requirement refers to Ministerial Decision 84 of 2025. Give that responsibility a named owner and a preparation timetable. A company relying on qualifying treatment needs a workable plan for producing the required financial information. ¹

Use the replacement activity decision

Ministerial Decision 229 of 2025, issued on August 28, 2025, replaced MD 265 of 2023. It takes effect from June 1, 2023. A review based only on the older decision needs to be brought into line with its replacement and the stated effective date. ¹

The qualifying activity list includes manufacturing, processing, qualifying-commodity trading, investment holding of shares and securities, logistics and specified shipping, fund-management, headquarters and financing activities. The name on the list is the start of the classification exercise. Match the exact activity and conditions to what your company does. ¹

The 2025 decision also changed the commodity wording. It removed the “in raw form” wording and added industrial chemicals, associated by-products and environmental commodities, subject to the quoted-price condition. Retail-packaged products are excluded from the listed commodity definition. A general description such as “trading” won't settle those distinctions. ³

Customers and transactions can change the answer

Transactions with natural persons are generally Excluded Activities, with narrow exceptions for the specified shipping, fund-management, wealth-management and aircraft-financing activities. Banking, most insurance, most finance and leasing, and specified property activities are also excluded. Review the actual transactions rather than relying only on a broad licence description. ¹

If your customer mix is changing, bring that change into the tax review before the new contracts become routine. A plan assessed for one activity or customer type shouldn't be carried forward unchanged after the business moves into another. Keep the classification beside the contract and revenue records.

For investment holding, shares and other securities are treated as held for investment purposes after an uninterrupted holding period of at least twelve months. Build the intended holding period into the assessment before assuming every purchase and disposal belongs in the same qualifying category. ¹

The de minimis limit is a ceiling to monitor

Non-qualifying revenue must not exceed 5% of total revenue or the statutory fixed amount, whichever is lower. MD 229 of 2025 applies this test with effect from June 1, 2023. Confirm the current figure for the dirham-denominated fixed limit before preparing your USD reporting calculation. ¹

The percentage alone isn't the whole test. Your records need to distinguish qualifying and non-qualifying revenue and preserve the basis for that distinction. Review the position during the period so that an unexpected contract doesn't first appear as a tax-status problem at year-end.

Income attributable to domestic or foreign permanent establishments, most immovable property and non-qualifying intellectual property isn't Qualifying Income and is taxed at 9%. A free-zone address doesn't turn those income categories into 0% income. ²

What this means for you

If a QFZP fails any condition at any time in a period, it ceases to qualify from the beginning of that period and for the following four tax periods. That consequence makes ongoing records and transaction review part of maintaining the position, rather than optional housekeeping. ¹

Adequate substance also needs a facts-based review. Don't use a generic package promise as a substitute for establishing the applicable requirements for your company. Confirm what must be maintained and keep the evidence with the rest of the qualification file.

What to do this month

• Replace any checklist relying only on MD 265 of 2023 with a review against MD 229 of 2025. Preserve the replacement decision and effective date in the company's tax file.
• Map each revenue stream to its activity, customer type and tax classification. Keep uncertain classifications visible before accepting new work.
• Prepare a de minimis calculation using both limits. Assign a recurring review rather than waiting for the annual return to reveal a problem.
• Confirm the audit, substance and transfer-pricing responsibilities. Give each requirement an owner, a due date and a place where the supporting records will be kept.

The FNC angle

FNC's structuring discussion should begin with the business you will actually run. Once the qualifying conditions and compliance workload are clear, the free-zone choice can be assessed alongside banking and ownership needs. The useful structure is one you can maintain as the business develops, not just one described as tax-free on formation day.