26 August 2026 · Free Zone
Your Free Zone Return Needs Its Own Working File
The Federal Tax Authority says Free Zone entities must register and file a Corporate Tax return even when they are Qualifying Free Zone Persons. The QFZP schedule records qualifying revenue, substance and confirmations, while income outside the qualifying rules may require separate treatment. The FTA's Free Zone Persons guide is the authority for the classification and supporting work.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
A Free Zone licence does not finish the return
A Free Zone licence does not remove the Corporate Tax return. The Federal Tax Authority says a Free Zone Person is a juridical person established or registered in a Free Zone, and QFZP status changes the treatment of qualifying income rather than eliminating registration and filing. Your licence, activity list, customer contracts and EmaraTax profile make the classification real. Start the return file with those objects, not with a claim that all revenue is qualifying.
Read the income test before the rate. The FTA's Free Zone Persons guide separates qualifying activities, excluded activities, qualifying income and profits attributable to a permanent establishment outside the Free Zone. A warehouse, office, customer and contract can each point to a different fact. If your income split cannot be traced to invoices and contracts, the 0% conclusion is not ready for handover.
Example. A distributor records AED 800,000 of total revenue, including AED 20,000 from a non-qualifying line. Five percent of AED 800,000 is AED 40,000, so AED 20,000 is below the lower-of test in this example. The arithmetic does not prove QFZP status. The activity, substance, audited-financial-statement and other conditions still need their own evidence.
- Register the Free Zone entity and confirm the Taxable Person profile.
- Separate qualifying revenue from other revenue.
- Trace each income category to a contract and invoice.
- Keep the substance evidence beside the income analysis.
The right rate depends on the activity behind the invoice
Qualifying status is a conclusion built from activity, customer and place of performance. The FTA guide discusses qualifying activities, excluded activities, domestic and foreign permanent establishments, immovable property and qualifying intellectual property. A company can have a qualifying core and a separate line that needs different treatment. Put the income map beside the general ledger so the reviewer can test the split without guessing what each account means.
The records change with the business. A service company needs contracts, work records and proof of where the activity is carried out. A distributor needs the customer and movement records that show resale or onward supply. A company with a Free Zone office and a mainland operation needs the lease, staff and operating records for both places. The FTA calls adequate substance a case-by-case question, so a slogan about location is not evidence.
We would not label a revenue stream qualifying from a general ledger code, because the code describes an accounting entry and not the activity that earned it. Start with the signed customer agreement, invoice, delivery or work record, then map the result to the FTA guide. If those objects disagree, pause the rate calculation and resolve the contract fact first.
- Signed customer agreement and invoice.
- Work, delivery or customs record for the activity.
- Lease, payroll and operating records for substance.
- Separate treatment for a domestic or foreign permanent establishment.
Each revenue line needs a document that makes it true
For each revenue line, keep the document that proves what was supplied and to whom. That usually means the signed contract, invoice, customer licence where resale matters, delivery record, bank receipt and any customs or shipping file. A summary spreadsheet is useful for sorting. It is not a substitute for the objects behind the classification. Name the revenue account, customer and activity in the working paper.
For a QFZP distributing goods or materials in or from a Designated Zone, Federal Tax Authority Decision No. 6 of 2026 adds a specific evidence route. It requires an agreed-upon procedures report from an independent external auditor, with work on customer reseller status and proof that imported goods entered through a Designated Zone. The supporting records include licences, signed confirmations, sales agreements, invoices, customs declarations and shipping documents.
The distribution procedure is not a general instruction for every Free Zone company. It reaches the activity described in the Decision. For other businesses, use the FTA guide and the actual contract and operating records to identify the relevant evidence. Exiloz can sort the source files, map revenue and prepare a handover for the independent external auditor. It does not perform statutory audits.
- Name the revenue account and activity.
- Keep the source document beside the classification.
- Do not treat an auditor report as work Exiloz performs.
| Evidence line | What it proves | File to keep |
|---|---|---|
| Qualifying service income | Activity and contract match | Signed agreement, invoice and work record |
| Distribution | Reseller and place of import | Customer licence, confirmation, customs and shipping record |
| Substance | Activity in the Free Zone | Lease, payroll and operating records |
| Financial statements | Accounts support the filing position | Accounts and independent auditor report where required |
What to finish before the authorised filer submits
Start by exporting the revenue ledger for the Tax Period and grouping it by activity, customer, contract and place of performance. Reconcile those groups to the trial balance and bank receipts. Then list every line that depends on a customer status, Free Zone location, permanent establishment, substance fact or special activity. The unresolved list is the useful handover. It tells the filer where the rate conclusion can still move.
If Decision No. 6 of 2026 applies, plan the independent auditor's agreed-upon procedures before the return is closed. The Decision says that report is due no later than 30 days after the Corporate Tax return deadline for the relevant Tax Period, unless the FTA sets another date. That is a separate deliverable. Do not assume a signed set of accounts answers the reseller and import questions.
The evidence boundary is genuine. The FTA guide explains the framework and gives examples, but it does not state how every blended contract, mixed-use asset or changing customer activity will be treated. If your documents show more than one possible characterisation, record the competing facts and ask for a specific conclusion. Do not turn uncertainty into a 0% label simply because the company holds a Free Zone licence.
- Freeze the revenue map before calculating the rate.
- Give the auditor the customer and import population where required.
- Save the FTA guide and the source documents used.
A Free Zone label cannot carry an unsupported 0% claim
The cost of a wrong classification is the tax that follows the evidence. The FTA Free Zone Persons guide says a Free Zone Person that fails a QFZP condition is subject to the standard Corporate Tax rates from the beginning of that Tax Period and the four subsequent Tax Periods. The standard rates are 0% up to AED 375,000 and 9% above AED 375,000. A licence is a starting fact, not proof of the rate.
Take one customer file and test it from contract to cash. Identify the customer type, the beneficial recipient, the activity, the place of performance and the supporting delivery or work record. Then test the same conclusion against the revenue map. If the invoice says one thing and the contract or shipment says another, keep the line in the exception list until the facts are resolved.
Example. A Free Zone Person has total Revenue of AED 800,000 and non-qualifying Revenue of AED 20,000. The de minimis ceiling is the lower of 5% of total Revenue, which is AED 800,000 x 5% = AED 40,000, and AED 5,000,000. AED 20,000 is below AED 40,000 in this example. The calculation does not prove QFZP status because substance, activities and the other conditions still need evidence.
- Test the customer and activity behind each revenue line.
- Check the current period and four-period consequence.
- Keep the de minimis calculation with the income map.
Frequently Asked Questions
For checking a Free Zone filing pack.
Must every Free Zone entity file?
Free Zone Persons generally must register and file a Corporate Tax return whether or not they qualify for the Free Zone Corporate Tax regime. The FTA Free Zone Persons guide sets out a narrow exception for a non-resident juridical person whose free-zone branch derives only State Sourced Income and has no UAE permanent establishment. Qualification affects the treatment of income. It does not remove the filing obligation.
What goes in the QFZP schedule?
The Federal Tax Authority's Tax Returns Guide says the QFZP schedule determines qualifying revenue, records substance in the Free Zone and includes confirmations about meeting the conditions. The working file should support each disclosure with revenue analysis and relevant records.
Is all Free Zone income qualifying income?
The Federal Tax Authority says qualifying status depends on the income definition and related conditions. Do not label all Free Zone revenue as qualifying. Classify revenue, expenses, activities and any permanent-establishment income in the working papers before calculating the return.
Can Exiloz prepare a Free Zone return?
The Federal Tax Authority requires the Free Zone entity to register and file its Corporate Tax return. Exiloz can organise the income split, supporting records and tax workings for review, while the Taxable Person or its authorised filer submits through EmaraTax.
Is your QFZP file ready?
Exiloz separates qualifying income, checks the QFZP records and prepares the working file for your authorised filer.