Qualifying income vs non-qualifying income: sorting a free zone revenue line

Income from a transaction with another free zone person is qualifying, unless it comes from an excluded activity. The free zone customer must be the beneficial recipient of the goods or services, meaning it actually uses or enjoys them rather than passing them straight to a mainland party.

Example: a Sharjah Airport International Free Zone packaging maker sells AED 2 million of cartons to a SAIF Zone food producer that uses them in its own production. That is a transaction with a free zone person that is the beneficial recipient, so it is qualifying.

Income from mainland or foreign customers can still qualify if it comes from a listed qualifying activity that is not excluded. Ministerial Decision No. 229 of 2025 lists them.

• Manufacturing goods or materials, and processing goods or materials
• Trading qualifying commodities, with related hedging
• Holding shares and other securities for investment purposes
• Ship operation, reinsurance, fund management and wealth management services
• Headquarters services and treasury and financing services to related parties
• Aircraft financing and leasing, and logistics services
• Distributing goods in or from a designated zone, under conditions

Excluded activities override everything else. They include transactions with natural persons (with limited exceptions for ships, funds, wealth management and aircraft financing), banking, insurance other than reinsurance, most finance and leasing, and owning or exploiting immovable property other than commercial property in a free zone transacted with free zone persons.

So the same packaging company selling AED 60,000 of boxes to individual online shoppers earns non-qualifying income, because the customers are natural persons. A consulting business in a free zone selling advisory services to mainland clients usually earns non-qualifying income too, because general consulting is not on the qualifying activity list.

Our packaging company's 2026 revenue is AED 18 million: AED 14 million to free zone manufacturers, AED 3.5 million of manufactured goods sold to mainland supermarkets, AED 400,000 to individuals online and AED 100,000 for design consultancy to a mainland brand. The manufacturing sales to the mainland qualify because manufacturing is a qualifying activity.

Non-qualifying revenue is AED 500,000. The de minimis limit is the lower of 5% of AED 18 million (AED 900,000) and AED 5 million, so AED 900,000. The company passes, and pays 9% on the taxable income attributable to the AED 500,000 of non-qualifying revenue. If the online shop grew to AED 1 million, the company would fail the test.

Every qualifying free zone person needs audited financial statements, so the auditor will test the split between qualifying and non-qualifying revenue. Expect requests for customer licence copies showing free zone status, contracts that show what was supplied, and evidence of where goods were delivered or services used.

Keep a customer file with the licence number, issuing authority and expiry date. When a customer moves from a free zone to the mainland, or the other way, update its classification from the move date rather than for the whole year.

Sorting revenue at year end from invoice descriptions is painful and unreliable. A better approach is to set up revenue accounts or classes by income type and to classify each customer once, when you create it: free zone, mainland, foreign or individual.

In HelloBooks, the AI agent reads the customer's licence details from its record and applies the right revenue class to every invoice it drafts. It flags an invoice to an individual or an unlisted activity so someone can check it. Asking 'list non-qualifying revenue by customer for 2026' returns the detail your tax agent needs to review. Custom revenue classes for your sector can be set up through /book-a-demo.