5 Conditions to Guarantee 0% Free Zone Corporate Tax (Cabinet Decision 100)

Under Cabinet Decision No. 100 of 2023, operating inside a UAE Free Zone does not automatically grant a 0% tax rate. Free Zone entities must meet 5 statutory tests to be classified as a Qualifying Free Zone Person (QFZP):

1. Adequate Physical Substance

The company must conduct its Core Income-Generating Activities (CIGA) within the Free Zone, employing adequate full-time staff and incurring proportional operational expenditure.

2. Qualifying Income Derived from Qualifying Activities

Income must be derived from transactions with other Free Zone persons (B2B) or from designated qualifying activities (e.g., manufacturing, re-export, fund management, headquarter services).

3. De Minimis Non-Qualifying Revenue Cap (≤ 5%)

Non-qualifying revenue (such as mainland consumer sales) must not exceed 5% of total revenue or AED 5,000,000, whichever is lower.

4. Mandatory IFRS Audited Financial Statements

Under Ministerial Decision No. 84 of 2025, keeping audited financial statements prepared under IFRS is a strict prerequisite for electing 0% tax status.

5. Transfer Pricing Compliance (Article 55)

All related-party transactions and intercompany recharges must comply with the Arm’s Length Principle backed by documentation.