Qualifying Free Zone Person (QFZP)
Fill in a year's free zone assessment, with the de minimis test and the conditions. When it qualifies, the year's return taxes qualifying income at 0% and the rest at 9%.
A company in a UAE free zone can be a Qualifying Free Zone Person (QFZP) for a tax period: it then pays 0% corporate tax on its qualifying income and 9% on the rest of its taxable income. In Verasol, the status of a year comes from that year's QFZP assessment, which you fill in and save on the QFZP screen. The year's return applies it when it is calculated. Without an assessment that qualifies, the year is taxed at the standard rates: 0% up to AED 375,000 and 9% above.
Open the assessment#
On the corporate tax dashboard, click QFZP Assessment under Quick Actions, or the link in the Free Zone Status (QFZP) box. The screen opens on the year being filed: the earliest year whose tax period has ended and whose return is not filed yet. When there is none, it opens on the financial year running today. Choose another year in Financial Year.
Until the year has a saved assessment, a note at the top says that the assessment is for companies registered in a UAE free zone. A new year's assessment starts with the free zone and licence number of the last one you saved.
Only a free zone company can be a Qualifying Free Zone Person (Article 18(1) of the Corporate Tax Law). When International › Settings record the company as something else, such as Mainland or Offshore, an amber warning says so, with a link to International settings: saving the assessment records the company as a free zone company. Check the classification before you save.
Fill in the assessment#
- Under Free zone and licence, choose the Free Zone. If yours is not in the list, choose Other free zone and type its name. Enter the Licence number.
- Under Income Classification, enter the year's revenue in three parts:
- Qualifying revenue (0%): from qualifying activities, and from free zone persons that are the beneficial recipients;
- Non-qualifying revenue: from excluded activities, and from other activities with mainland or foreign persons. This revenue counts in the de minimis test;
- Revenue left out of the test (9%): of a mainland branch or a branch abroad, from immovable property, and from intellectual property other than qualifying intellectual property.
- Under Conditions, tick what the company meets: Adequate Substance (with its core activities, office, Full-time employees and Operating expenditure (AED) in the free zone), Audited financial statements and Transfer pricing rules met. Tick Elected to be subject to corporate tax at the standard rates only if the company made that election.
- Under Mainland branch and excluded activities, tick Has a branch outside the free zones (a domestic permanent establishment) if it has one, and the excluded activities the company carries on: transactions with individuals, banking, insurance, regulated finance and leasing, and owning or exploiting immovable property.
- Add any Notes, and click Save Assessment.
Saving the assessment also records the company as a free zone company in its International settings, with the free zone and licence number when the settings have none yet. The corporate tax dashboard, the Small Business Relief screen and the return then all treat the company as a free zone company.
1 Financial Year, 2 Free Zone, 3 the revenue in its three parts, 4 the De Minimis Test, 5 Adequate Substance and the other conditions, 6 Save Assessment. 7 The box on the right shows Qualifying or Not Qualifying, with each condition met or not.
While you type, the De Minimis Test shows the non-qualifying revenue as a share of the revenue the test counts, and the limit, with PASS or FAIL. A warning appears when you tick excluded activities without entering non-qualifying revenue, or a mainland branch without revenue left out of the test.
When you save the assessment of a year whose return is Calculated or Reviewed, the return goes back to Draft: open it and calculate it again. When the year's return is filed, the screen says so and the assessment cannot be saved: reopen the return first, then save the assessment, calculate and file the return again. See Correct a filed return.
How Verasol decides the status#
Verasol treats the company as a QFZP for a year only when it is recorded as a free zone company and the year's saved assessment meets every condition:
- the de minimis test: the non-qualifying revenue is at most the lower of 5% of the revenue the test counts (qualifying and non-qualifying revenue) and AED 5,000,000;
- adequate substance in the free zone;
- audited financial statements;
- the transfer pricing rules are met;
- no election to be taxed at the standard rates;
- no assessment in the four years before failed these conditions. A year that fails them loses the status for that year and the following four, and the screen names the year that failed.
A mainland branch and excluded activities do not end the status by themselves. The branch's revenue is left out of the de minimis test and taxed at 9%. The revenue of excluded activities is non-qualifying revenue: it counts in the test and is taxed at 9%.
How a qualifying assessment changes the return#
For a year that qualifies, the return:
- taxes the qualifying income at 0% and the rest at 9% from the first dirham, without the 0% band of AED 375,000;
- divides the taxable income between the two in the proportion of the qualifying revenue to the rest of the revenue in the assessment (the non-qualifying revenue and the revenue left out of the test);
- shows Qualifying and the 0% Income in the Free Zone (QFZP) box.
Otherwise the box shows Not Applicable and the standard rates apply.
A Qualifying Free Zone Person cannot use Small Business Relief: Verasol marks such a year Not Eligible for it.
On the corporate tax dashboard, the Free Zone Status (QFZP) box of a free zone company shows Qualifying or Not Qualifying for the financial year running today, with the same checks as the return. A qualifying year shows the 0% Income and the 9% Income, which includes the revenue left out of the test. When the year has no assessment yet, the box offers Complete Assessment. A company that is not recorded as a free zone company sees Not recorded as a free zone company, with a link to this screen.