UAE Qualifying Free Zone Person (QFZP) Tax Regime Overhauled

Client Alert
6 November 2023 By PATRYK KARCZEWSKI

Qualifying Free Zone Persons (QFZPs) are eligible to apply a 0% corporate tax rate on their Qualifying Income. The Qualifying Income is not defined in Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (CT Act) but its scope is described by a combination of type of activities and who is the recipient of the transaction.

Until last week, the scope of the Qualifying Income was defined by two legal acts:

  • Cabinet Decision No. 55 of 2023 and
  • Ministerial Decision No. 139 of 2023.

In November, these two decisions were repealed and replaced by:

  • Cabinet Decision No. 100 of 2023 and
  • Ministerial Decision No. 265 of 2023.

Importantly, the latter decisions are applicable from 1 June 2023, the date that the CT Act came into forward, and, therefore have a retrospective effect.

These new decisions reflect the response from the UAE authorities to Public Consultations announced for the Qualifying Free Zone Person regime, that took place in the last weeks of July 2023. Many of the changes in the legislation reflect views that were presented in the Public Consultation Paper published by the Ministry of Finance.

In this alert, we cover the most important changes resulting from the abovementioned changes.

Removal of “IP assets exploitation” from Excluded Activities

One of the most impactful changes is the removal of the “exploitation of IP assets” from the list of Excluded Activities in the current Ministerial Decision No. 265 of 2023.

In the previous version, generating revenues from IP assets, was the Excluded Activity. Consequently, income generated from IP assets, under the previous legislation, was subject to de minimis rule and potentially subject to 9% tax. In the current decision, income from the Qualifying Intellectual Property (a new category introduced by Cabinet Decision No. 100 of 2023) can be considered as Qualifying Income by using the special calculation formula.

This change increases chances for Free Zone Persons generating income from IP assets to become Qualifying Free Zone Person.

Confirmation of the narrow scope of manufacturing as the Qualifying Activity

Manufacturing of goods or materials was and remains the Qualifying Activity. However, the new decision clarified the scope of the activity. Previously it was unclear whether manufacturing with distribution can fall within the scope of the Qualifying Activity or whether distribution should be separated and treated as regular income subject to de minimis rules.

Decision No. 265 of 2023 clarified that manufacturing of goods or materials includes the production, improvement, or assembly of products and materials from raw materials or components. Hence, it is expected that income generated from the distribution of goods/materials should be identified, excluded, and treated as non-qualifying Income if dealing with a Non-Free Zone Person.

Introduction of the Qualifying Commodities as the Qualifying Activity

The New Ministerial Decision introduced a new type of activity – trading of Qualifying Commoditiesthat is considered a Qualifying Activity, i.e. eligible for a 0% rate regardless of the status of the
customer (Free Zone or Non-Free Zone Person) as long as the customer is not a natural person.

Trading of Qualifying Commodities means the physical trading activities of Qualifying Commodities and associated derivative trading used to hedge against risks involved in such activities. The Qualifying Commodities, on the other hand, are defined as Metals, minerals, energy, and agriculture commodities that are traded on a Recognized Commodities Exchange Market in raw form.

Importantly, trading of those items can happen from any Free Zone, not only from the Designated Zone.

Holding of Shares

New legal acts clarified that activity described as holding shares (Qualifying Activity) will cover only situations where shares are held for an uninterrupted period of at least 12 months.

Clarification of Substance Requirements

Cabinet Decision No. 100 of 2023 contains an indication of how the Federal Tax Authority will approach adequate substance requirements. Free Zone Persons if they wish to meet the adequate substance in the Free Zone need to undertake core income-generating activities (CIGAs) in the Free Zone. It appears that one will be considered as meeting this requirement if significant functions that drive the business value for each activity are performed in the Free Zone.

Therefore, it is important to review whether personnel conducting significant functions that drive the business are located in the Free Zone or outside.

Furthermore, substance requirements for income from the Qualifying Intellectual Property are much more relaxed when compared to other activities. Activities generating income from the Qualifying Intellectual Property can be outsourced virtually to anyone (not only Party that is located in the Free Zone), including overseas entities.

These changes provide some additional clarity to grey areas that existed under the previous decisions.

Should you require an assessment of whether you are eligible to benefit from the Qualifying Free Zone Person, please feel free to reach out to us at

DUBAI | AMERELLER | One by Omniyat, 14th Floor | Business Bay | P.O. Box 97706 | Dubai, UnitedArab Emirates | T +971 4 432 3671
RAS AL KHAIMAH | AMERELLER TAX Consultancy FZ-LLC | Ras Al Khaimah Economic Zone | P.O. Box16462 | Ras Al Khaimah, United Arab Emirates | T +971 7 204 6255

This client alert is a public document for informational purposes only and should not be construed as legal advice. Readers should not act upon the information provided here without consulting with professional legal counsel. This material may be considered advertising under certain rules of professional conduct. Copyright © 2023

Qualifying Free Zone Persons (QFZPs) are eligible to apply a 0% corporate tax rate on their Qualifying Income.

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