Under UAE Corporate Tax law, a Qualifying Free Zone Person (QFZP) enjoys a 0% tax rate on certain income but only if they stay within limits on non-qualifying income. The De Minimis Rule allows a QFZP to earn a small amount of non-qualifying income without losing their tax exemption. You're still considered a QFZP if your non-qualifying income is less than 

• AED 5 million, or 

• 5% of your total revenue, whichever is lower. 

These thresholds are set out in Cabinet Decision No. 100 of 2023, which outlines who qualifies for Free Zone tax benefits and under what conditions. It’s one of the strictest applications of the De Minimis Rule in global tax systems, and if you cross either limit even by a dirham or a decimal, your entire income becomes subject to the standard 9% corporate tax.  

Before we get to examples, here’s a quick refresher on what counts: 

Qualifying Income includes: 

• Income from transactions with other Free Zone entities 

• Income from international customers (outside UAE) 

• Passive income like interest or dividends 

Non-Qualifying Income includes: 

• Income from the mainland UAE (unless through a warehouse or specific activities) 

• Revenue from excluded activities, even if done inside the Free Zone 

Ministerial Decision No. 265 of 2023 defines excluded activities to include: 

• Banking 

• Insurance 

• Investment management 

• Ownership or operation of real estate (if rented to non-Free Zone persons) 

• Certain financial services 

To stay eligible for the 0% Free Zone tax rate, your non-qualifying income must meet two conditions: it must be less than or equal to AED 5 million and not more than 5% of your total revenue. Fail either threshold even by a small margin and your Qualifying Free Zone Person status is revoked for the year and four subsequent years. Tracking the De Minimis Rule accurately is critical if you have mixed income streams, especially from both Free Zone and mainland sources. Let’s break it down with simple examples.  

Example 1: Within De Minimis Limits 

Let’s say your Free Zone company earns a total revenue of AED 10 million in a tax year. Out of this, AED 400,000 comes from non-qualifying sources; say, a few small mainland consulting clients. 

Now let’s test this against the de minimis rule. 

First, the AED value: AED 400,000 is well below the AED 5 million cap. That’s a pass. 

Next, the percentage: AED 400,000 is 4% of AED 10 million, so also within the 5% threshold. 

Since both conditions are met, your business retains its Qualifying Free Zone Person (QFZP) status. That means you still qualify for the 0% corporate tax rate on all relevant income. 

Example 2: Exceeds Percentage Limit 

Now imagine a smaller Free Zone company with total revenue of AED 6 million. 

Out of this, AED 400,000 is non-qualifying income, maybe from direct sales to mainland customers. 

Here’s the catch: while AED 400,000 is still under the AED 5 million absolute limit, it makes up 6.6% of total revenue. That exceeds the 5% limit set by the De Minimis Rule. 

Even though the AED amount looks safe, crossing the percentage cap means your business loses QFZP status. The entire taxable income above AED 375,000 is now subject to 9% corporate tax. 

A costly oversight for what seems like a small number. 

Example 3: Exceeds AED 5 Million Limit 

Now consider a large Free Zone company generating AED 200 million in total revenue. 

It earns AED 6 million from non-qualifying income, perhaps from selling to mainland businesses or offering excluded services. 

At first glance, the non-qualifying portion is just 3% of revenue, clearly within the 5% threshold. 

But here’s the problem: AED 6 million exceeds the AED 5 million limit, even though the percentage is low. Because you’ve breached either of the de minimis rules, QFZP status is lost. Again, the full taxable profit is now liable for 9% tax. 

Even big companies can stumble if they focus only on percentages and ignore the AED cap. 

The De Minimis Rule may seem like a technical detail, but it carries heavy consequences. As you’ve seen, even a small slip in percentage or value can cost you your QFZP status for five years. And with that, your entire profit becomes taxable at 9%. Here’s how to protect your 0% status: 

• Monitor non-qualifying income monthly, not just at year-end. 

• Run De Minimis checks before signing new mainland contracts. 

• Segment your income streams clearly in your accounting system. 

• Consult a UAE tax specialist if your business model includes mainland or mixed operations. 

The 0% corporate tax benefit is valuable and worth protecting.  With Kitaab, you stay informed, stay within the limits, and stay fully compliant.