The short answer
A Qualifying Free Zone Person keeps its 0% rate only if non-qualifying revenue stays at or below the lower of 5% of total revenue or AED 5 million in each tax period. Breach it and the company is taxed at standard rates for that period and the next four. Non-qualifying income is taxed at 9% with no AED 375,000 band.
How is the de minimis limit calculated?
Take the lower of two figures: 5% of total revenue, or AED 5 million (Ministry of Finance free zone decisions). For a company with AED 20 million revenue, 5% is AED 1 million, so that is the limit. For a company with AED 150 million revenue, 5% is AED 7.5 million, so the AED 5 million cap applies. Revenue from a domestic or foreign permanent establishment, and from certain free zone property, is left out of the calculation.
What counts as non-qualifying revenue?
Revenue from excluded activities, and revenue from transactions with mainland or other non-free-zone customers that are not qualifying activities. Qualifying activities include manufacturing and processing, trading qualifying commodities, holding shares, ship management, treasury and financing services to related parties, and distribution from a designated zone, among others. Most professional and consultancy services provided to mainland clients are non-qualifying.
“the 9% on your non-qualifying income has no AED 375,000 tax-free band”
What happens if a free zone company breaches the limit?
It loses Qualifying Free Zone Person status for the period of the breach and the following four tax periods, and is taxed as an ordinary taxable person at 9% above AED 375,000 for those years (Ministry of Finance). There is no grace margin: a single large mainland contract can tip a small company over.
Is non-qualifying income taxed at 9% from the first dirham?
Yes, for a company that stays qualifying. Its qualifying income is taxed at 0%, and its taxable income that is not qualifying is taxed at 9% with no AED 375,000 band, which belongs to the standard regime (Meydan Free Zone Authority). So AED 200,000 of non-qualifying income costs AED 18,000 in tax, where a mainland company with the same profit would pay nothing.
How do I monitor the rule during the year?
Tag every revenue line at invoice level as qualifying or non-qualifying, and review the running percentage monthly against the limit. Set an internal warning at around 3% so there is time to restructure a contract, invoice through a mainland branch or decline work. Your auditor will test the classification, since Qualifying Free Zone Persons must keep audited financial statements (Ministerial Decision No. 82 of 2023).
Frequently asked questions
Is the de minimis test applied per year?
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Yes, per tax period.
Does mainland revenue always count as non-qualifying?
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No. Some qualifying activities remain qualifying even with mainland customers; the activity and the counterparty both matter.
Can I regain status after a breach?
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Only after the disqualification period of the breach year plus four tax periods ends, and only if all conditions are met again.
Sources
- Ministry of Finance announces new decisions relating to Corporate Tax for Free Zones (Cabinet Decision No. 55 of 2023, Ministerial Decision No. 139 of 2023) — WAM, Emirates News Agency. Checked 16 October 2026.
- Qualifying vs non-qualifying income under UAE Corporate Tax — Meydan Free Zone Authority. Checked 16 October 2026.
- Ministerial Decision No. 82 of 2023 on audited financial statements (revenue above AED 50 million and Qualifying Free Zone Persons) — UAE Ministry of Finance. Checked 16 October 2026.
- Cabinet Decision No. 116 of 2022 on the annual Taxable Income subject to Corporate Tax (AED 375,000) — UAE Ministry of Finance. Checked 16 October 2026.