Lesson 5 — Qualifying Free Zone Person: the status and its price
A Qualifying Free Zone Person is taxed at 0% on Qualifying Income and 9% on everything else (CT Law Art. 3(2)). The conditions for holding the status are in Art. 18(1), and one of them is the de minimis test this lesson and the next are about. Audited financial statements are required under MD 84/2025 — required, not recommended.
The de minimis test, exactly. Non-qualifying revenue must not exceed 5% of total revenue or AED 5,000,000, whichever is lower (MD 229/2025 Art. 3). Lower, not higher. The two figures cross at total revenue of AED 100,000,000: below that the percentage binds, above it the fixed ceiling does.
| Total revenue (AED) | 5% of total revenue (AED) | Fixed ceiling (AED) | The limit that applies (AED) |
|---|---|---|---|
| 40,000,000 | 2,000,000 | 5,000,000 | 2,000,000 |
| 100,000,000 | 5,000,000 | 5,000,000 | 5,000,000 |
| 300,000,000 | 15,000,000 | 5,000,000 | 5,000,000 |
Check which instrument you are citing. MD 229/2025 repealed MD 265/2023 and applies retroactively from 1 June 2023. If your free-zone file, your engagement letter or your internal policy cites MD 265/2023, it cites an instrument that no longer exists — and because the replacement is retroactive, the citation has been wrong for the whole period it covers rather than only from the date of the new decision.
Failing a condition costs five tax periods, not one. Where a condition is failed, the status is lost for that period and the subsequent four tax periods (MD 229/2025 Art. 5(2)). That is stricter than the CT Law's own default, and it is the reason the de minimis test deserves a written review procedure rather than a glance at a number.
Worked example — the cost of a slip. A free-zone company fails a condition in the period ending 31 December 2026. Its income is then taxed under the ordinary rules — 0% up to AED 375,000, then 9% — for the periods ending 31 December 2026, 2027, 2028, 2029 and 2030. On taxable income of AED 4,000,000 a year, that is 9% of (4,000,000 − 375,000), or AED 326,250 each year, and AED 1,631,250 across the five periods.
The failure mode is reading "whichever is lower" as "whichever is higher". It is a one-word misreading that turns an AED 2,000,000 limit into an AED 5,000,000 one for a company with AED 40,000,000 of revenue, and it is discovered when the status has already gone for five periods. Write the test into your checklist as a full sentence rather than a number, so the word survives.