Aqid ERPTwo rates, and no AED 375,000 band
A Qualifying Free Zone Person pays 0% on its qualifying income and 9% on the rest of its taxable income. The 0% band on the first AED 375,000 that a mainland company has does not apply to that taxable rest. Small Business Relief is not open to a Qualifying Free Zone Person either.
The conditions
All of them, for the whole tax period:
- Adequate substance in the free zone: its core income-generating activities, staff and assets there.
- It earns qualifying income.
- It has not elected to be taxed at the standard rates.
- Its dealings with related parties are at arm's length, with transfer pricing documentation.
- It prepares audited financial statements.
- Its non-qualifying revenue stays within the de minimis limit.
What counts as qualifying income
Broadly: income from transactions with other free zone persons that are the beneficial recipients, income from qualifying activities that are not excluded activities (a Ministerial Decision lists both, most recently No. 229 of 2025), and income from qualifying intellectual property. Income from a qualifying activity can come from mainland customers too, unless the activity is an excluded one; most transactions with natural persons are.
The de minimis test
Non-qualifying revenue in a tax period must not exceed 5% of total revenue or AED 5,000,000, whichever is lower. The FTA's own example: a company with AED 7,300,000 of revenue, AED 500,000 of it non-qualifying, is at 6.85% and fails.
| Total revenue | AED 7,300,000 |
|---|---|
| Non-qualifying revenue | AED 500,000 |
| Share | 6.85% |
| Limit (lower of 5% and AED 5m) | AED 365,000 |
| Result | Fails the test |
What failing costs
A company that fails a condition stops being a Qualifying Free Zone Person for that tax period and the four after it: five years taxed at the standard rates. So the test is worth watching during the year, not discovered when the accounts are closed.
What Aqid ERP does, and does not
Aqid ERP records, period by period, that a UAE company is a Qualifying Free Zone Person, and keeps Small Business Relief off its estimate. It does not yet split qualifying from non-qualifying income: its corporate tax estimate is worked out at the standard rates, so for a Qualifying Free Zone Person it is not the tax due. Keeping qualifying and non-qualifying revenue in separate income accounts lets the de minimis test be read from the ledger at any time.