Qualifying free zone person: conditions, qualifying income and records

Article 18 requires the company to keep adequate substance in the UAE, derive qualifying income, not elect to be taxed under Article 19, comply with the arm's length rules in Article 34 and keep transfer pricing documentation under Article 55. Ministerial Decision No. 82 of 2023 adds that a qualifying free zone person must prepare and maintain audited financial statements, whatever its size.

If a condition is not met at any time, Article 18(2) says the company stops being a qualifying free zone person from the beginning of that tax period.

Article 3 of Cabinet Decision No. 100 of 2023 lists four categories:

• Income from transactions with another free zone person, except from excluded activities.
• Income from transactions with a non-free zone person, but only for qualifying activities that are not excluded activities.
• Income from qualifying intellectual property, under the decision's rules.
• Any other income, provided the de minimis requirements are met.

Ministerial Decision No. 265 of 2023 lists qualifying activities such as manufacturing and processing goods, trading qualifying commodities, holding shares for investment, ship management, reinsurance, fund and wealth management, headquarter and treasury services to related parties, aircraft financing, distribution in or from a designated zone, and logistics. Excluded activities include most transactions with natural persons, banking, most insurance, most finance and leasing, and owning or exploiting immovable property, with limited exceptions.

Under Article 3 of that decision, non-qualifying revenue must not exceed 5% of total revenue or AED 5,000,000, whichever is lower. A JAFZA distributor with AED 60 million of revenue can therefore earn at most AED 3 million of non-qualifying revenue, because 5% is the lower figure.

The de minimis test is only as good as the revenue coding. In HelloBooks the AI agent tags each sales line by customer type (free zone person, mainland business, individual) and by activity, using rules your accountant sets. Ask "what share of revenue is non-qualifying this year?" and it returns the ratio with the invoices behind it. Your tax adviser decides how each stream is classified; the AI applies the rules consistently once they are agreed. Partner firms can request customised revenue categories and reports at /book-a-demo.