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Guide Published 23 October 2026 6 min read

The free zone de minimis rule, with worked examples

How the UAE free zone de minimis test works: non-qualifying revenue capped at the lower of AED 5m or 5%, what's excluded, and four worked examples.

The de minimis rule lets a free zone company earn a small amount of "non-qualifying" revenue and still keep its Qualifying Free Zone Person (QFZP) status. The limit is the lower of AED 5 million or 5% of total revenue in the tax period. Go over it, and you lose QFZP status for that period and the next four, and the standard corporate tax rates apply instead.

What is the de minimis rule?

To get the 0% rate on qualifying income, a free zone company has to meet every QFZP condition. Those are adequate substance, qualifying income, arm's-length pricing, audited financial statements, no election into the standard regime, and the de minimis test (PwC Tax Summaries).

The legal basis is Article 4 of Cabinet Decision No. 100 of 2023, which leaves the Minister to set the actual figures. Ministerial Decision No. 229 of 2025 replaced the earlier Ministerial Decision No. 265 of 2023 and sets the same lower-of AED 5 million or 5% test (Middle East Briefing; BSA Law). The FTA explains how to apply the test in section 4.4 of its Free Zone Persons guide (CTGFZP1, May 2024).

What counts as qualifying and non-qualifying revenue?

The FTA guide sorts your revenue into three buckets.

Qualifying revenue usually comes from:

  • transactions with other free zone persons who are the "beneficial recipient", meaning they actually use the goods or services in their own free zone business (and the activity is not an Excluded Activity)
  • Qualifying Activities, such as manufacturing, qualifying commodity trading, logistics and headquarter services to related parties, done with anyone, unless they are Excluded Activities

Non-qualifying revenue is revenue from:

  • Excluded Activities. Most transactions with individuals fall here. The FTA's own example treats a company's sale of an office chair to an employee as an Excluded Activity.
  • activities that are not Qualifying Activities, where the customer is a non-free zone person, for example consultancy billed to a mainland company
  • transactions with a free zone person who is not the beneficial recipient, for example when the goods are passed on to someone else

Disregarded revenue is left out of the test completely. It counts in neither the non-qualifying figure nor the total. The next section covers it.

"Revenue" means the gross amount of income for the tax period, before costs (FTA guide glossary).

What revenue is excluded from the calculation?

Section 4.4 of the FTA guide, based on Cabinet Decision 100, tells you to remove four types of revenue from both sides of the sum:

  1. revenue attributable to a domestic permanent establishment, such as a mainland branch
  2. revenue attributable to a foreign permanent establishment
  3. revenue from immovable property in a free zone, except commercial property transactions with other free zone persons
  4. revenue from owning or exploiting intellectual property, except qualifying income from qualifying IP

Excluded does not mean tax-free. This revenue is generally taxed at 9% on its own terms. It just cannot cost you QFZP status. Income an exempt person earns in that capacity, such as from an extractive business, is also left out.

Revenue booked through a branch has to be measured at arm's length. You cannot push non-qualifying sales into a mainland branch at an artificial price to pass the test. If you use the Dubai mainland operating permit, get advice on how that onshore revenue is treated for the test.

How do you calculate it?

  1. Start with total gross revenue for the tax period.
  2. Take out the four excluded categories above. What remains is the total revenue for the test.
  3. From that total, add up the non-qualifying revenue.
  4. Work out 5% of the total revenue from step 2.
  5. Your limit is the lower of that 5% figure and AED 5,000,000.
  6. If non-qualifying revenue is at or under the limit, you pass. If it goes over, you fail.

Note that the non-qualifying revenue stays inside the total. You do not deduct it before working out the 5%.

Worked examples

All figures are in AED for one tax period. They are illustrations we built to show the arithmetic. They are not FTA examples, and real cases depend on how each revenue line is classified.

A: small consultancy B: large trader C: company with a mainland branch D: company with free zone property
Gross revenue 4,000,000 150,000,000 10,000,000 8,750,000
Excluded from test 0 0 3,000,000 (domestic PE) 2,500,000 (free zone property let to mainland firms)
Total revenue for test 4,000,000 150,000,000 7,000,000 6,250,000
Non-qualifying revenue 150,000 6,000,000 400,000 250,000
5% of total 200,000 7,500,000 350,000 312,500
Limit (lower of 5% or 5m) 200,000 5,000,000 350,000 312,500
Share of total 3.75% 4.0% 5.71% 4.0%
Result Pass Fail Fail Pass

What each one shows:

  • A passes. AED 150,000 of non-qualifying revenue sits under the 5% limit of AED 200,000. For smaller companies, the 5% limit will nearly always be the one that bites.
  • B fails even at 4%. The percentage is under 5%, but AED 6 million is over the AED 5 million cap. Once total revenue goes above AED 100 million, the fixed cap is the lower figure.
  • C is the common trap. Against gross revenue of AED 10 million, AED 400,000 looks like 4%. But the AED 3 million earned through the mainland branch has to come out of the total first. Against AED 7 million, the non-qualifying share is 5.71%, so the company fails.
  • D passes. The rent from free zone property let to mainland companies is left out of the test, though it is still taxed at 9%. AED 250,000 against AED 6.25 million is 4%.

The FTA guide includes its own versions. In Example 5, a company with AED 500,000 of non-qualifying revenue against AED 7.3 million fails at 6.85%. In Example 6, the same company passes at 2.86% once AED 300,000 is moved into a domestic permanent establishment. Example 9 shows that a start-up whose only revenue in the year is a AED 100 sale to an employee fails, because that is 100% of its revenue. A free zone company with no revenue at all does not fail the test.

What happens if you fail the de minimis test?

Failing is not limited to the non-qualifying slice. According to the FTA guide, the company stops being a QFZP from the start of that tax period and for the four tax periods after it. Its whole taxable income then falls under the standard rules: 0% on the first AED 375,000 and 9% above that. The PwC summary shows the timeline. A calendar-year company that fails in 2024 is out until the end of 2028 and tests again from 1 January 2029. Meeting every condition in 2025 to 2028 does not bring the status back early.

On a company with AED 2 million of qualifying profit, that can mean about AED 146,250 of extra tax each year for five years. That is 9% on the profit above AED 375,000, as an illustration that ignores other adjustments.

How can you stay under the limit?

  • Track every revenue line by customer type (free zone, mainland, individual, overseas) and activity code as you go, not at year end.
  • Check whether free zone customers are the beneficial recipient. The FTA accepts a written statement from the buyer unless you have reason to doubt it.
  • Watch one-off items such as asset sales to staff or small retail sales.
  • If mainland sales are growing, look at a properly set-up branch or a separate mainland company rather than letting them build up in the QFZP.

Pricing your setup? Our year-one cost guide covers fees. Creators should also read SHAMS vs SPC, because selling directly to individuals often counts as non-qualifying.

What to check before you act

  • Have an FTA-registered tax agent classify your revenue lines against Ministerial Decision 229 of 2025 and the FTA guide.
  • Confirm how any branch or mainland operating permit revenue is measured.
  • Run the test each quarter, not just at year end.
  • Remember that passing de minimis is only one QFZP condition. Substance, audit and transfer pricing still apply.

This guide is general information, not tax advice, and does not promise any tax outcome. uaefreezone.com is independent and is not affiliated with the FTA, the Ministry of Finance or any free zone authority.

General information only, not legal, tax or immigration advice. Free zone fees and rules change; confirm the current figures with the free zone authority before you commit. Spotted something out of date? Tell us.

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