The QFZP de minimis test: AED 5,000,000 is the wrong number below AED 100m of Revenue, and failing costs five Tax Periods
A Qualifying Free Zone Person pays 0% on its Qualifying Income and 9% on the rest (Article 3(2) of Federal Decree-Law No. 47 of 2022). The de minimis test is the condition that decides whether a small amount of ordinary mainland or non-qualifying business breaks that status altogether. It is usually quoted in one line: non-qualifying Revenue must not exceed 5% of total Revenue or AED 5,000,000, whichever is lower (Ministerial Decision No. 265 of 2023, which replaced No. 139 of 2023 with effect from 1 June 2023).
The line is correct and it is also, for most free zone companies, misleading in three separate ways. This page is not tax advice; the Decree-Law, the Cabinet and Ministerial Decisions and the FTA control.
1. The AED 5,000,000 arm does not bind until AED 100,000,000 of Revenue
The two arms of the test are a percentage and a cash cap, and the rule takes whichever is lower. Five percent of total Revenue equals AED 5,000,000 at exactly AED 100,000,000 of total Revenue. So:
| Total Revenue for the test | 5% of it | Cash cap | The cap that actually applies |
|---|---|---|---|
| AED 10,000,000 | 500,000 | 5,000,000 | **AED 500,000** |
| AED 20,000,000 | 1,000,000 | 5,000,000 | **AED 1,000,000** |
| AED 100,000,000 | 5,000,000 | 5,000,000 | **AED 5,000,000** (the crossover) |
| AED 300,000,000 | 15,000,000 | 5,000,000 | **AED 5,000,000** |
Below AED 100,000,000 of Revenue the AED 5,000,000 figure is decoration: the 5% arm is always the lower one and the cash cap can never be reached without failing the percentage first. Above it, the reverse: a company with AED 300,000,000 of Revenue does not get AED 15,000,000 of headroom, it gets AED 5,000,000.
This matters because the headline number people remember is the large one. A free zone company with AED 20,000,000 of Revenue that budgets its non-qualifying work against AED 5,000,000 has mistaken its allowance by a factor of five.
2. The denominator is not the Revenue line in the accounts
The test is run on Revenue, but not on all of it. Revenue attributable to a Domestic or a Foreign Permanent Establishment of the Qualifying Free Zone Person, and revenue from the ownership or exploitation of immovable property (other than the carve-outs for Commercial Property in a Free Zone transacted with other Free Zone Persons), is taken out of both the non-qualifying Revenue and the total Revenue in the calculation. Those streams are taxed at the standard rate in their own right; they do not sit inside the ratio.
Taking revenue out of the denominator makes the allowance smaller, not larger, and that is the direction that catches people:
Worked case. A free zone company reports AED 20,000,000 of Revenue in its accounts. AED 6,000,000 of it is attributable to a foreign branch that is a Foreign Permanent Establishment. Non-qualifying Revenue from mainland customers is AED 800,000.- Read off the accounts: 5% of AED 20,000,000 is AED 1,000,000. AED 800,000 looks like comfortable headroom.
- Run correctly: the AED 6,000,000 comes out of total Revenue, so the base is AED 14,000,000. 5% of that is AED 700,000. AED 800,000 fails.
Same company, same ledger, two different answers, and the one taken off the face of the accounts is the wrong one.
3. Failing is not a one-year event, and it is backdated
This is the part that turns the test from a compliance line into a risk register entry.
It is backdated to the start of the period. Article 18(2) of the Decree-Law says a Qualifying Free Zone Person that fails any of the Article 18(1) conditions at any particular time during a Tax Period ceases to be a Qualifying Free Zone Person from the beginning of that Tax Period. There is no part-year apportionment. A company that crosses the line in month eleven was not a QFZP in month one. It lasts five Tax Periods. Cabinet Decision No. 100 of 2023 takes the cessation past the current period: the person ceases to be a Qualifying Free Zone Person from the beginning of the relevant Tax Period and for the subsequent four Tax Periods. One period of excess non-qualifying Revenue removes the 0% rate for five.What that costs is arithmetic a business can do before it accepts the order that breaks the test. Once the status is gone, Article 3(1) applies to everything: 0% on Taxable Income up to AED 375,000 (Cabinet Decision No. 116 of 2022) and 9% above it. A free zone company with AED 4,000,000 of Taxable Income pays (4,000,000 − 375,000) × 9% = AED 326,250 in the period it failed, and carries the same exposure for four more. Against that, AED 100,000 of non-qualifying Revenue accepted in month eleven is not a marginal decision.
4. De minimis is one condition of five, and two of the others are not about revenue at all
A Free Zone Person is a Qualifying Free Zone Person only if it meets all the conditions of Article 18(1): adequate substance in the State; Qualifying Income as specified by the Cabinet; no election under Article 19 to be taxed at the standard rates; compliance with the arm's length principle and transfer pricing documentation (Articles 34 and 55); and any other conditions prescribed by the Minister. The Minister has prescribed two, and the de minimis test is only the first of them. The second is that the person prepares audited financial statements.
The consequence in Article 18(2) and Cabinet Decision No. 100 of 2023 attaches to failing *any* of them. A company that passes de minimis with room to spare and does not have audited financial statements has the same five-period outcome as one that failed on revenue. So does one that cannot produce transfer pricing documentation for a related-party transaction.
Two things follow for how the test is run. It is a monitoring obligation, not a year-end check, because the consequence is backdated and the only safe moment to discover a breach is before it happens. And a free zone company that elects into the standard rates under Article 19 has chosen the 9% regime deliberately: that is a decision, not a failure, and it does not carry the four-period tail.
Where the test is done for you
The free UAE Corporate Tax calculator runs the Article 20(2) computation for one Tax Period in the browser, including the de minimis test, so the liability sitting behind a QFZP decision is the first figure you see. The UAE Corporate Tax Computation Workbook ($29, /uae-corporate-tax/) applies the de minimis test as a live formula, taking the lower of the two arms rather than the one that is easier to remember, alongside the Small Business Relief eligibility test, the interest limitation, the carry-forwards for next period and the filing date computed from the period end, with the article or decision cited on every line. Team and consultancy licences are $119 and $249. The order the computation runs in is set out in how UAE Corporate Tax is computed, the relief a free zone person cannot have in UAE Small Business Relief, the dates in the return deadline guide, and the cost of missing one in late return vs late payment.
Sources
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses: Article 3(1) (the 0% and 9% rates), Article 3(2) (the Qualifying Free Zone Person rates), Article 18(1) (the conditions), Article 18(2) (cessation from the beginning of the Tax Period), Article 19 (the election to be taxed at the standard rates), Articles 34 and 55 (arm's length principle and transfer pricing documentation). Read from the Decree-Law text held in this repository's product sources.
- Ministerial Decision No. 265 of 2023 on Qualifying Activities and Excluded Activities, which replaced Ministerial Decision No. 139 of 2023 with retroactive effect from 1 June 2023: the de minimis requirement, non-qualifying Revenue not exceeding the lower of 5% of total Revenue and AED 5,000,000, and the exclusion of Permanent Establishment and immovable property revenue from the calculation.
- Cabinet Decision No. 100 of 2023 on Qualifying Income, which replaced Cabinet Decision No. 55 of 2023 with retroactive effect from 1 June 2023: the cessation of Qualifying Free Zone Person status from the beginning of the relevant Tax Period and for the subsequent four Tax Periods.
- FTA Corporate Tax Guide, Small Business Relief, CTGSBR1, section 3.1.2: the five Article 18(1) conditions and the two conditions prescribed by the Minister, the de minimis test and audited financial statements. Read from the FTA PDF held in this repository's product sources.
- Cabinet Decision No. 116 of 2022: the AED 375,000 threshold for the 0% rate under Article 3(1).
Article numbers of Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023 are deliberately not cited: the decisions are named and their content stated, because the article numbering of the replacement decisions has not been read against the official text. A page that sells traceability does not guess a citation.
Last checked against the sources on 5 October 2026.
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