Qualifying Free Zone Person Checklist
What this page covers
Qualifying Free Zone Person Checklist
A Qualifying Free Zone Person review helps a UAE free zone company assess whether its income may qualify for the zero percent corporate tax rate.
Free zone registration alone is not enough. The review should cover income sources, mainland activity, substance, accounting records, filings, and transfer pricing.
In brief
- The zero percent rate may apply when a free zone entity meets the required conditions and earns income within the qualifying scope.
- Key checks include free zone or overseas income, adequate substance in the free zone, limited mainland dealings, and correct tax reporting.
- A free zone company may still need corporate tax registration, accounting records, tax returns, and declarations confirming that it meets the conditions.
What to do
Start with the business model and income flow. Review where customers, suppliers, contracts, assets, and management activity are located, then separate income that may qualify from income that may fall outside the free zone regime.
Then check substance and compliance. The company should be able to show real activity in the free zone, maintain proper accounts, keep supporting documents, report income and expenses correctly, and file returns where required.
Related-party arrangements need careful documentation. Transactions between group companies, shareholders, branches, or subsidiaries should follow arm’s length pricing so they are not treated as hidden distributions or non-compliant arrangements.
What to keep in mind
Qualifying Free Zone Person treatment is a preferential tax position and should be supported by records. A company may need to declare its status and confirm each year that it continues to meet the conditions.
Mainland activity can change the outcome. If a free zone company serves mainland clients, earns non-qualifying income, or misses compliance requirements, profits may be taxed under the normal UAE corporate tax rules.
The checklist is useful before filing, changing contracts, restructuring operations, or relying on the zero percent rate. It helps identify gaps in income classification, substance, records, and related-party arrangements before the tax position is reported.