In brief
The Federal Tax Authority has issued a Corporate Tax summary of private clarifications, which includes several important positions relevant to Free Zone Persons and Qualifying Free Zone Persons.
The summary provides useful practical insight on areas such as:
- QFZP eligibility;
- Free Zone branches and non-Free Zone branches;
- adequate substance;
- Beneficial Recipient testing;
- Qualifying Income;
- Qualifying Activities and Excluded Activities;
- Designated Zone distribution;
- logistics services;
- transfer pricing adjustments; and
- documentation required to support the 0% Corporate Tax position.
The key message for UAE Free Zone businesses is that the 0% Corporate Tax rate is not automatic. A Free Zone licence alone does not confirm that income qualifies for the 0% regime.
Instead, the position should be tested by reference to the taxpayer’s legal form, activities, revenue streams, counterparties, substance, contracts, transfer pricing position and supporting evidence.
Key takeaway
The FTA private clarification summary reinforces an important compliance principle:
QFZP status should be tested at entity level, activity level, counterparty level and revenue-stream level.
For Free Zone businesses, the central question is not simply whether the company is licensed in a Free Zone.
The practical question is:
Which income streams qualify for 0% Corporate Tax, which income streams are exposed to 9%, and is there sufficient evidence to support the treatment taken in the Corporate Tax return?
In detail
1. Why the FTA private clarification summary matters
Private clarifications are issued by the FTA to taxpayers in response to specific fact patterns. They help clarify how the FTA may interpret certain provisions of the Corporate Tax Law and related decisions.
For Free Zone businesses, the published summary is particularly useful because it highlights practical areas where taxpayers are seeking certainty, including:
- whether a person can qualify as a QFZP;
- how branches should be treated;
- how adequate substance should be assessed;
- when a customer may be regarded as the Beneficial Recipient;
- whether certain services or activities qualify for 0% treatment;
- how Designated Zone distribution should be evidenced; and
- how transfer pricing adjustments affect QFZP status.
However, private clarifications remain fact-specific. They should not be treated as general rulings for all taxpayers.
Each Free Zone business should perform its own analysis based on its specific facts, documents and operating model.
2. Private clarifications are not a substitute for technical analysis
A key limitation is that private clarifications are issued for the applicant’s own facts.
Therefore, another taxpayer should not rely on a private clarification summary as if it were issued to them. The summary is helpful for understanding the FTA’s approach, but it does not replace:
- review of the Corporate Tax Law;
- review of Cabinet and Ministerial Decisions;
- review of FTA guides;
- factual analysis;
- contract review;
- accounting review;
- transfer pricing analysis; and
- documentation of the tax position.
For this reason, the summary should be used as a risk indicator and planning reference, not as a standalone basis for claiming the 0% Free Zone Corporate Tax rate.
3. Free Zone Person and QFZP are not the same
A Free Zone Person is generally within the scope of UAE Corporate Tax. However, only a Free Zone Person that meets the prescribed conditions may be treated as a Qualifying Free Zone Person and benefit from the 0% Corporate Tax rate on Qualifying Income.
The FTA clarification summary highlights that a QFZP must be a juridical person.
This means that structures such as discretionary trusts, unincorporated partnerships or arrangements that are not juridical persons cannot automatically be treated as QFZPs.
Practical impact
Free Zone businesses should first confirm:
- the legal identity of the taxpayer;
- whether the entity is a juridical person;
- whether it is established in a Free Zone;
- whether it meets the QFZP conditions; and
- whether the income being tested is Qualifying Income.
The analysis should not start with the 0% rate. It should start with the legal status of the taxpayer.
4. Branches require careful analysis
The FTA clarification summary provides important insight on branch structures.
Where a Free Zone Person has branches in one or more Free Zones, the Free Zone Person and its Free Zone branches are generally assessed collectively as one Taxable Person. However, each activity should still be reviewed separately, particularly for adequate substance and income classification.
Where a Free Zone Person has a branch outside the Free Zone, the branch may create a Domestic Permanent Establishment or Foreign Permanent Establishment.
Income attributable to that Permanent Establishment may not qualify for the 0% Free Zone regime.
Practical impact
Free Zone businesses with mainland branches, overseas branches or mixed operating models should separately identify:
- Free Zone activities;
- mainland activities;
- foreign branch activities;
- income attributable to each location;
- expenses attributable to each location;
- personnel and asset allocation; and
- whether any Permanent Establishment income should be taxed at 9%.
This is particularly important for businesses operating across both Free Zone and mainland markets.
5. Adequate substance is an operational test
The adequate substance condition is a key requirement for QFZP status.
The FTA clarification summary indicates that substance should be assessed based on the facts and circumstances of each business and each activity. Relevant factors may include:
- level of activity carried out;
- qualified employees;
- assets used;
- operating expenditure;
- premises or workspace;
- management and supervision;
- decision-making;
- control over outsourced functions; and
- whether the Free Zone Person performs or controls its core income-generating activities.
Substance is therefore not limited to having a licence, desk space or registered address.
Practical impact
Free Zone businesses should maintain evidence such as:
- employment records;
- visa and payroll details;
- office lease or workspace agreements;
- board and management minutes;
- internal approvals;
- contracts with customers and suppliers;
- outsourcing agreements;
- cost allocation records;
- activity-level financial records; and
- evidence of where key functions are performed.
Substance should be tested annually, not only at the time of incorporation.
6. Beneficial Recipient test is a key risk area
The Beneficial Recipient test is one of the most practical issues for Free Zone businesses transacting with other Free Zone Persons.
The FTA clarification summary indicates that the analysis should consider whether the customer has the right to use and enjoy the goods or services, and whether the customer is under any contractual or legal obligation to pass them on to another person.
This means the invoice recipient is not always enough. The actual commercial and contractual position should be reviewed.
Practical impact
Businesses should consider:
- who is named as the customer in the contract;
- who receives the invoice;
- who pays for the goods or services;
- who has legal ownership or control;
- who uses or enjoys the goods or services;
- whether there is an onward obligation;
- whether the customer is acting as agent, conduit or principal; and
- whether any Permanent Establishment benefits from the transaction.
For service providers, this is particularly important where services are provided to founders, shareholders, related parties, natural persons or group entities.
7. Services to natural persons may create 0% tax exposure
The clarification summary includes practical points on services where the Beneficial Recipient may be a natural person.
This is relevant for advisory firms, consultants, corporate service providers, business setup consultants and other Free Zone service businesses.
Where the actual beneficiary of the service is a natural person, the income may not qualify for the 0% Free Zone Corporate Tax treatment, depending on the facts and whether the activity falls within an Excluded Activity.
Practical impact
Businesses should ensure that the following are aligned:
- engagement letter;
- service description;
- invoice;
- customer identity;
- payment flow;
- actual beneficiary;
- commercial purpose; and
- supporting correspondence.
Where services relate to a company but are instructed or paid by individuals, additional care is required.
8. Qualifying Activities should be tested based on actual activity
Ministerial Decision No. 229 of 2025 is now a key reference for Qualifying Activities and Excluded Activities.
The activity classification should not be based only on the trade licence description. It should be tested against the actual work performed, contracts, invoices, operational flow and revenue streams.
Qualifying Activities may include, subject to conditions:
- manufacturing;
- processing;
- trading of Qualifying Commodities;
- holding shares and securities for investment purposes;
- headquarter services;
- treasury and financing services;
- fund management;
- wealth and investment management;
- reinsurance;
- ship ownership, management and operation;
- aircraft financing and leasing;
- distribution of goods or materials in or from a Designated Zone;
- logistics services; and
- ancillary activities.
Excluded Activities may include certain transactions with natural persons, banking, insurance, finance and leasing, certain immovable property activities, and ancillary activities to Excluded Activities.
Practical impact
Businesses should prepare an activity mapping schedule showing:
- licence activity;
- actual activity;
- revenue stream;
- customer type;
- contract reference;
- invoice description;
- relevant legal category;
- whether the activity is Qualifying, Excluded or neither; and
- tax treatment applied.
This schedule should be retained as part of the Corporate Tax working file.
9. Transfer pricing remains central to QFZP compliance
The clarification summary indicates that a transfer pricing adjustment made in the Corporate Tax return to align transactions with the arm’s length principle does not automatically disqualify a Free Zone Person from QFZP status.
This is a helpful practical point.
However, it does not remove the need for proper transfer pricing analysis and documentation.
Practical impact
Free Zone businesses should review related party and connected person transactions, including:
- management fees;
- shared services;
- financing arrangements;
- guarantees;
- royalty or IP arrangements;
- procurement structures;
- sales support;
- commission arrangements;
- cost allocations; and
- branch allocations.
Where material, these should be supported by agreements, functional analysis, benchmarking where required, and reconciliation to the Corporate Tax return.
10. Designated Zone distribution requires stronger evidence
Distribution of goods or materials in or from a Designated Zone is one of the most important Free Zone Corporate Tax areas.
The FTA clarification summary provides practical points on distribution activities, including whether goods need to be purchased directly from manufacturers, whether the customer is an end user, and what evidence may be required to support the position.
FTA Decision No. 6 of 2026 introduces additional procedures for QFZPs engaged in distribution of goods or materials in or from a Designated Zone for Tax Periods starting on or after 1 January 2026.
These procedures include the requirement to obtain an agreed-upon procedures report from an independent external auditor.
Practical impact
Businesses engaged in Designated Zone distribution should maintain strong documentation, including:
- customer trade licences;
- customer declarations;
- reseller confirmations;
- customer KYC;
- contracts;
- invoices;
- purchase orders;
- customs documents;
- import records;
- shipping documents;
- inventory records;
- warehouse reports;
- logistics documents;
- proof of goods movement; and
- evidence that customers are not end users where required.
This area is likely to be evidence-driven and should be prepared before filing the Corporate Tax return.
11. Logistics services: outsourcing does not automatically disqualify the activity
The FTA clarification summary indicates that a taxpayer does not necessarily need to perform every logistics function itself for the activity to qualify.
Outsourcing may be acceptable, depending on the facts, provided the Free Zone Person retains appropriate control and the outsourced activities are not the core income-generating activities, or are otherwise properly managed under the applicable rules.
Practical impact
Logistics businesses should document:
- which activities are performed in the Free Zone;
- which activities are performed outside the Free Zone;
- which functions are outsourced;
- who controls the outsourced activity;
- who bears risk;
- where decision-making takes place;
- how revenue is earned; and
- whether adequate substance exists in the Free Zone.
Practical impact for businesses
The FTA clarification summary provides helpful technical insight, but it also increases the importance of evidence-based compliance.
Free Zone businesses should not treat QFZP status as a one-time conclusion.
Instead, they should perform an annual review covering:
- QFZP eligibility;
- legal status of the taxpayer;
- Free Zone and non-Free Zone branches;
- revenue-stream classification;
- activity classification;
- Beneficial Recipient analysis;
- adequate substance;
- Designated Zone distribution evidence;
- logistics activity support;
- related party transactions;
- transfer pricing documentation;
- audited financial statement readiness;
- Corporate Tax return reconciliation; and
- record retention.
Actions to consider
Free Zone businesses should consider preparing a QFZP technical file before filing their Corporate Tax return.
This file should include:
- Free Zone licence and legal status review;
- QFZP eligibility checklist;
- revenue-stream classification matrix;
- Qualifying Activity and Excluded Activity mapping;
- customer and counterparty classification;
- Beneficial Recipient analysis;
- substance assessment;
- branch and Permanent Establishment review;
- transfer pricing review;
- Designated Zone distribution file;
- logistics activity support file;
- audited financial statement reconciliation;
- Corporate Tax return working papers; and
- management approval of the tax position.
Where there is genuine uncertainty, a private clarification request may be considered. However, the request should be supported by clear facts, legal analysis, documentary evidence and specific questions.
How PTG Consultant L.L.C can support
Before relying on the 0% Free Zone Corporate Tax rate, businesses should complete a structured technical review of their QFZP position.
PTG Consultant L.L.C can support with:
- Free Zone Corporate Tax review;
- QFZP eligibility assessment;
- Qualifying Income classification;
- revenue-stream testing;
- Beneficial Recipient analysis;
- adequate substance documentation;
- Designated Zone distribution review;
- FTA Decision No. 6 of 2026 readiness;
- logistics activity review;
- transfer pricing and related party documentation;
- Corporate Tax return support; and
- private clarification request preparation where genuine uncertainty remains.
Conclusion
The FTA private clarification summary gives Free Zone businesses valuable insight into practical QFZP issues. However, it does not replace a taxpayer-specific technical review.
For UAE Free Zone businesses, the safest approach is to treat QFZP status as an annual evidence-based compliance exercise.
The 0% Free Zone Corporate Tax position should be supported by clear facts, proper contracts, accurate accounting records, transfer pricing support, substance evidence and revenue-stream documentation.
Official source basis
This article has been prepared with reference to:
- FTA Corporate Tax Summary of Private Clarifications issued up to May 2026;
- FTA Private Tax Clarifications Request service page;
- FTA Corporate Tax Guide: Free Zone Persons;
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended;
- Cabinet Decision No. 100 of 2023 on Determining Qualifying Income for Qualifying Free Zone Persons;
- Ministerial Decision No. 229 of 2025 on Qualifying Activities and Excluded Activities;
- Ministerial Decision No. 230 of 2025 on Recognised Price Reporting Agencies;
- FTA Decision No. 6 of 2026 on additional procedures for QFZPs engaged in distribution of goods or materials in or from a Designated Zone; and related UAE Corporate Tax guidance and Free Zone Corporate Tax framework.
Disclaimer
This article is for general informational purposes only and does not constitute legal, tax or accounting advice. Private clarifications are fact-specific and issued for the applicant only. Businesses should obtain professional advice based on their specific facts before taking any tax position or filing a Corporate Tax return.