Qualifying Free Zone Person (QFZP) Services

Gupta Accountants provides Qualifying Free Zone Person (QFZP) advisory services to help UAE free zone businesses understand the conditions for preferential Corporate Tax treatment and maintain compliance with the applicable requirements. Our services focus on qualifying income assessments, substance requirements, transfer pricing, audited financial statements, and the ongoing obligations relevant to QFZP status.

A free zone company does not automatically qualify for the 0% Corporate Tax rate simply because it is incorporated in a UAE free zone. It must satisfy the relevant statutory conditions and assess whether its income falls within the qualifying categories.

Our QFZP advisory services help businesses evaluate their current arrangements, identify potential compliance concerns, and understand the measures required to support their tax position.

QFZP Advisory Services for UAE Free Zone Companies

Maintaining Qualifying Free Zone Person status requires attention to income classification, business activities, financial records, and applicable tax conditions. Businesses should review these matters regularly to identify changes that could affect their tax treatment.

Gupta Accountants provides tailored advisory support based on the nature of your business, its transactions, and the relevant UAE Corporate Tax provisions.

1. Qualifying Free Zone Person Eligibility Review

A Free Zone Person must satisfy the prescribed conditions to benefit from the preferential Corporate Tax regime. These requirements should be assessed in the context of the company's legal status and actual business operations.

Our QFZP eligibility review may include:

• Reviewing the company's free zone registration and legal structure.

• Assessing the conditions applicable to Qualifying Free Zone Person status.

• Reviewing the company's business activities and sources of income.

• Considering relevant operational substance requirements.

• Reviewing transfer pricing and financial reporting arrangements.

• Identifying areas requiring further documentation or corrective action.

The review helps management understand the requirements relevant to the company's position and determine whether additional measures may be necessary.

2. Qualifying Income Assessment

The 0% Corporate Tax rate is available to a Qualifying Free Zone Person only in respect of income that meets the applicable qualifying income rules.

The treatment depends on the nature of the transaction, the counterparty, the business activity, and the specific provisions governing qualifying and excluded activities.

Our services include:

• Reviewing the company's principal revenue streams.

• Assessing income from transactions with other Free Zone Persons.

• Reviewing relevant transactions with mainland UAE and overseas counterparties.

• Evaluating income arising from prescribed qualifying activities.

• Identifying income potentially affected by excluded activity rules.

• Reviewing supporting documentation for reported qualifying income.

This assessment helps businesses understand the tax treatment of their revenue and maintain appropriate records to support their Corporate Tax position.

3. De Minimis Threshold Monitoring

A Qualifying Free Zone Person must satisfy the applicable de minimis requirement for non-qualifying revenue. Under the relevant rules, non-qualifying revenue must generally not exceed the lower of 5% of total revenue or AED 5 million, subject to prescribed exclusions and calculation rules.

Gupta Accountants can assist with:

• Reviewing revenue classifications.

• Identifying potentially non-qualifying revenue.

• Calculating the applicable threshold.

• Reviewing relevant excluded revenue categories.

• Monitoring revenue against the prescribed limit.

• Identifying transactions that may require further assessment.

Monitoring this threshold can help businesses identify potential concerns before finalising their tax calculations and Corporate Tax Return.

4. Adequate Substance Requirements

Qualifying Free Zone Person status requires adequate substance in the UAE and, where relevant, within the appropriate free zone or designated zone for the qualifying activity.

The assessment may involve reviewing whether the business maintains appropriate assets, qualified employees, operating expenditure, and core income-generating activities in the relevant location.

Our advisory support may include:

• Reviewing the company's operational structure.

• Assessing the location of core income-generating activities.

• Reviewing relevant employee and asset information.

• Considering operating expenditure in relation to business activities.

• Examining outsourcing arrangements where applicable.

• Identifying documentation needed to support the substance assessment.

The requirements depend on the nature of the qualifying activity and the applicable rules. A registered office or free zone licence alone does not necessarily demonstrate adequate substance.

5. Transfer Pricing Compliance for QFZPs

Free zone businesses must comply with the applicable transfer pricing rules when dealing with related parties and connected persons. Relevant transactions should be evaluated in accordance with the arm's-length principle.

Our QFZP transfer pricing services may include:

• Identifying relevant related-party and connected-person transactions.

• Reviewing the commercial nature of intercompany arrangements.

• Assessing pricing policies against applicable requirements.

• Reviewing relevant agreements and supporting records.

• Evaluating transfer pricing documentation requirements.

• Identifying areas requiring further analysis or documentation.

Appropriate transfer pricing arrangements and records can support the company's tax reporting position and help demonstrate compliance with the applicable requirements.

6. Audited Financial Statements and Accounting Compliance

Preparing and maintaining audited financial statements is a condition applicable to Qualifying Free Zone Persons under the relevant UAE Corporate Tax rules.

Accurate financial statements and supporting accounting records are also important for determining qualifying income, non-qualifying revenue, and the company's overall tax position.

Gupta Accountants can assist with reviewing relevant accounting information, including:

• Financial statements and accounting schedules.

• Revenue and expenditure classifications.

• Reconciliation of accounting information with tax calculations.

• Documentation supporting different income categories.

• Relevant related-party transaction records.

• Information needed for Corporate Tax Return preparation.

Any audit engagement is subject to the applicable requirements, agreed scope, and relevant professional authorisations.

7. Review of Qualifying and Excluded Activities

The UAE Corporate Tax rules distinguish between qualifying activities and excluded activities. The applicable tax treatment should be evaluated according to the nature of the business and the specific requirements in force.

Our advisory services can help assess whether the company's activities fall within the prescribed categories and whether particular revenue streams require additional consideration.

The review may cover manufacturing, distribution, logistics, holding activities, qualifying financing arrangements, and other activities where relevant under the applicable rules.

We also consider whether excluded activities, customer categories, or particular transaction structures may affect the treatment of income or the company's eligibility for QFZP status.

8. QFZP Compliance Review and Risk Assessment

Changes in revenue, business activities, staffing, operating arrangements, or customer relationships may affect a company's compliance position. Periodic review can help identify matters requiring attention.

Our compliance review may cover:

• Continued eligibility for QFZP status.

• Qualifying income and revenue classifications.

• De minimis threshold calculations.

• Substance and operational arrangements.

• Transfer pricing policies and documentation.

• Audited financial statements.

• Corporate Tax Return information and supporting records.

• Relevant tax deadlines and filing obligations.

Following the review, we explain the findings and recommend practical next steps within the agreed scope of work.

9. Corporate Tax Return Preparation for QFZPs

Qualifying Free Zone Persons remain subject to applicable Corporate Tax registration, filing, and record-keeping obligations even when qualifying income benefits from the 0% rate.

Our services may include reviewing financial information, assessing tax calculations, checking the classification of income, and assisting with Corporate Tax Return preparation and filing.

We also help businesses identify information needed to support their reported tax position and understand the relevant filing and payment requirements.

Understanding the Tax Benefits Available to QFZPs

The UAE Corporate Tax framework allows a Qualifying Free Zone Person to benefit from a 0% Corporate Tax rate on qualifying income, provided the applicable conditions are satisfied.

However, the preferential treatment is not a blanket exemption for every type of income earned by a free zone company.

Key considerations include:

• Qualifying income: Only income meeting the applicable statutory criteria can benefit from the 0% rate.

• Non-qualifying income: Such income is generally subject to the 9% Corporate Tax rate, subject to the relevant rules.

• Adequate substance: The business must satisfy the applicable operational substance requirements.

• De minimis condition: Non-qualifying revenue must remain within the prescribed limit.

• Transfer pricing: Applicable related-party pricing requirements must be met.

• Audited financial statements: The required financial statements must be prepared and maintained.

• Continuing compliance: The business must continue to satisfy the relevant conditions and meet applicable filing obligations.

A QFZP generally does not benefit from the ordinary AED 375,000 taxable income threshold on income that is non-qualifying. The applicable treatment should therefore be evaluated carefully.

What Happens If a Business Loses QFZP Status?

A business that fails to meet the applicable conditions may lose its Qualifying Free Zone Person status. Under the relevant rules, this can affect the company's Corporate Tax treatment for the tax period in which the failure occurs and subsequent tax periods.

The consequences depend on the applicable legislation, the condition that has not been met, and the circumstances of the business. The rules generally provide for a four-tax-period consequence following the relevant period of failure, subject to applicable provisions and exceptions.

Gupta Accountants can assist with reviewing potential compliance concerns, explaining the relevant tax implications, and identifying appropriate next steps. Businesses should seek advice promptly if they identify an issue that may affect their qualifying status.

Why Choose Gupta Accountants for QFZP Services?

Maintaining qualifying status requires a coordinated understanding of tax rules, financial records, and operational arrangements.

Gupta Accountants offers:

• QFZP-focused advisory: Guidance on the conditions relevant to Qualifying Free Zone Person status.

• Income classification support: Assistance with assessing qualifying and non-qualifying revenue.

• Compliance risk reviews: Identification of potential gaps in existing tax arrangements.

• Substance assessment guidance: Review of relevant operational and supporting information.

• Transfer pricing support: Assistance with applicable related-party compliance requirements.

• Financial reporting assistance: Support with accounting records and tax reporting information.

• Practical recommendations: Clear explanations of findings and potential corrective steps.

Our objective is to help businesses understand the conditions relevant to their tax treatment and establish appropriate processes for ongoing compliance.

Businesses That May Benefit from QFZP Advisory Services

Our services may be relevant to:

• Newly established UAE free zone companies.

• Existing free zone businesses reviewing their tax position.

• Companies assessing eligibility for the 0% Corporate Tax rate.

• Trading and distribution businesses.

• Service providers and professional businesses.

• Companies with related-party or intercompany transactions.

• Businesses with multiple income streams.

• Free zone entities reviewing operational substance.

• Companies preparing or reviewing their Corporate Tax Returns.

The scope of advice depends on the company's legal status, business activities, financial position, and applicable tax requirements.

Frequently Asked Questions - Qualifying Free Zone Person

What is a Qualifying Free Zone Person?

A Qualifying Free Zone Person is a Free Zone Person that satisfies the conditions prescribed under UAE Corporate Tax legislation. These conditions include adequate substance, qualifying income, compliance with applicable transfer pricing rules, and other relevant requirements.

Does every UAE free zone company qualify for the 0% Corporate Tax rate?

No. A free zone licence does not automatically entitle a company to the 0% rate. The business must satisfy the relevant QFZP conditions, and the preferential rate applies to qualifying income rather than all income.

What is the de minimis requirement for a QFZP?

The non-qualifying revenue threshold is generally the lower of 5% of total revenue or AED 5 million, subject to the applicable exclusions and calculation rules. Businesses should review their revenue classifications and supporting records when assessing this condition.

Are audited financial statements required for QFZPs?

Yes. Qualifying Free Zone Persons are generally required to prepare and maintain audited financial statements in accordance with the applicable UAE Corporate Tax requirements.

Do QFZPs need to comply with transfer pricing rules?

Yes. Applicable transfer pricing rules must be considered for transactions with related parties and connected persons. Relevant documentation requirements depend on the circumstances and the applicable legislation.

Can a QFZP earn income from mainland UAE customers?

A free zone company may transact with mainland UAE customers, but the tax treatment depends on the relevant activity, transaction, counterparty, and statutory conditions. The company should assess whether the income qualifies and whether the applicable requirements remain satisfied.

What happens if a QFZP fails to meet one of the conditions?

Failure to meet an applicable condition can affect the company's qualifying status and Corporate Tax treatment. The consequences depend on the specific condition and relevant rules, and may extend to subsequent tax periods. A detailed review is advisable when a potential issue is identified.

How can Gupta Accountants assist with maintaining QFZP status?

Gupta Accountants can help review qualifying income, de minimis calculations, substance requirements, transfer pricing documentation, audited financial statements, and Corporate Tax filing information. The appropriate scope depends on the company's circumstances.

Maintain Your Qualifying Free Zone Person Status with Gupta Accountants

Maintaining QFZP status requires ongoing attention to income classification, operational substance, financial reporting, and the applicable UAE Corporate Tax conditions.

Gupta Accountants provides Qualifying Free Zone Person advisory services to help UAE free zone businesses assess their position, identify potential compliance concerns, and understand the requirements relevant to preserving preferential tax treatment.

Contact Gupta Accountants to discuss your company's activities and determine the appropriate QFZP advisory support for your business.

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