26 August 2026 · Free Zone
The Free-Zone Handover Needs More Evidence
The Federal Tax Authority says a Free Zone Person remains a Taxable Person and must keep Corporate Tax records. A Qualifying Free Zone Person also needs documentation to show how it calculated Qualifying Income. The FTA guide states records are kept for seven years after the relevant Tax Period. Preserve the income trail, activity evidence, accounting files and return workings together.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
A free-zone licence is only the starting object
The Federal Tax Authority treats a Free Zone Person as a Taxable Person. A licence shows where the entity is established and what its authority permits. It does not, by itself, show the activity that produced each receipt, the customer relationship behind the contract or the calculation used for Qualifying Income. Put the licence beside the accounting and commercial evidence so the status can be tested from the file.
The FTA says a Qualifying Free Zone Person must maintain adequate substance in the UAE, derive Qualifying Income, comply with transfer pricing rules and keep the relevant documentation, and not elect to be subject to Corporate Tax at the standard rate. Those are conditions, not labels to copy into a cover sheet. The handover should show the document that supports each condition.
If you are deciding whether a free-zone return can rely on the 0% treatment, start with the invoice register and contracts, not the logo on the trade licence. The accountant needs to see the customer, service, place of performance, related parties and operational role. A clean activity trail makes the classification review possible.
- Licence, registration record and Tax Return.
- Income grouped by the actual activity.
- Contracts, invoices and customer evidence.
Classify receipts from the contract outward
A qualifying-income schedule should be traceable to the sales ledger, invoice, contract and bank receipt. Add the activity description used by the business and the evidence of where the work was performed or managed. If another company supplied part of the service, keep the subcontract, invoice and explanation of the free-zone entity's role together.
Example only. The sales ledger showed AED 480,000 for a service line, the contract file supported AED 420,000 of that activity, and AED 60,000 remained in a vague account. The arithmetic is AED 420,000 + AED 60,000 = AED 480,000. The AED 60,000 is not automatically non-qualifying. It is the amount that needs its own invoice, contract or classification note before the return working can be trusted.
Do not solve a classification gap by moving the receipt into a more convenient column. Keep the original account, identify the document that changes the conclusion and record who approved the treatment. The FTA guide explains the categories and conditions, but your contract and transaction file supply the facts that decide where a receipt belongs.
- Tie each receipt to a contract and invoice.
- Explain outsourced work and the entity's role.
- Keep uncertain receipts visible for review.
| Evidence object | What it supports | Question if absent |
|---|---|---|
| Trade licence and registration record | Entity, activity and free-zone status | Which legal entity earned the receipt? |
| Contract and invoice | Customer, service and consideration | What was supplied and to whom? |
| Bank receipt and ledger entry | Amount, date and accounting trail | Does the cash movement match the sale? |
| Subcontract or delivery file | Operational role and substance | Who performed the relevant work? |
Keep related-party facts in the same folder
A free-zone file often separates the tax working from the facts that explain it. Keep the employee or contractor evidence, office records, management approvals and supplier agreements near the activity schedule. Where a related company bills the free-zone entity, show both sides of the entry, the agreement, the service description and the reason the charge belongs to that entity.
The FTA's free-zone guidance discusses adequate substance, transfer pricing documentation and permanent establishments. Your handover should therefore identify who made the decision, who performed the work and which entity bore the risk. A short note signed by the person responsible is useful when the ledger description is too short to show the commercial reality.
Our view is that free-zone businesses should keep an activity file by revenue stream rather than one annual spreadsheet. The reason is that the same entity can earn receipts with different treatment. A stream-level file lets the accountant test the contract, invoice and operational evidence together before relying on the qualifying-income schedule.
- Keep related-party agreements with both ledgers.
- Identify the people and entity doing the work.
- Separate revenue streams by actual activity.
Preserve the return working, not just the result
The FTA says Corporate Tax records and documents must be retained for at least seven years after the end of the relevant Tax Period. That includes the transaction trail, asset records, liabilities and other material used to support the return. Store the source invoices, contracts, bank evidence, activity schedules and calculation together so the result can be reconstructed later.
Keep a copy of the Corporate Tax return, the computation used to prepare it and every version of the qualifying-income schedule that was approved. Add a short change note when a receipt moves between categories. A final spreadsheet without its prior explanation may show the answer while hiding the judgement that produced it.
The mistake we see most is treating the free-zone licence as the evidence pack. It proves an administrative fact, not the entire tax position. When the accountant receives only the licence and a total for qualifying income, the review starts again. Send the underlying documents and mark any receipt whose classification still needs a decision.
- Keep seven-year records with the return working.
- Save approved schedules and change notes.
- Treat the licence as one document, not the proof.
Resolve the question the guide cannot answer
The FTA guide sets out the conditions, activity categories and record expectations for Free Zone Persons. It cannot decide how an unlabelled contract should be treated without the actual customer, service and delivery facts. That is the boundary of the evidence. Do not replace those facts with a confident description written after the return working is complete.
We would not hand over a 0% position as settled when the activity schedule contains receipts with no contract or delivery record. The reason is simple: the missing object is the document that makes the classification testable. Put the receipt on the open-items list, ask the commercial owner for the agreement and let the accountant record the decision with its source.
At the decision point, gather the licence, registration record, return, ledger, contracts, invoices, bank evidence, related-party files and qualifying-income schedule. Then identify the one receipt that would be hardest to explain to the FTA. Start there. The useful handover is the one that lets a reviewer reach that document without asking the business to rebuild its history.
- List every receipt without source evidence.
- Record the document needed for each decision.
- Keep the accountant's conclusion with its source.
Frequently Asked Questions
For handing over a free-zone Corporate Tax file.
Does a free-zone company still need a tax handover?
Free Zone Persons generally must register for Corporate Tax and file a return whether or not they qualify as a Qualifying Free Zone Person. 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. The handover should therefore include the return records, accounting files and evidence supporting the company’s treatment of its income.
What does a QFZP handover need?
The Federal Tax Authority’s Free Zone Persons guide points to records supporting the calculation of Qualifying Income. Give the accountant the activity trail, contracts, invoices, accounting schedules, outsourced-work evidence and the working papers used to prepare the Corporate Tax return.
Can a QFZP claim 0% without evidence?
The Federal Tax Authority guide says a Qualifying Free Zone Person needs sufficient documentation to demonstrate how it calculated Qualifying Income. A 0% position should therefore be supported by an income trail and the records behind the classification, not only by the company’s free-zone licence.
How long should free-zone tax records stay available?
The Federal Tax Authority’s Free Zone Persons guide states that a Free Zone Person must keep the records and documents required for Corporate Tax for seven years after the end of the relevant Tax Period. Keep the source files and the working papers together so they can be produced if requested.
Need the free-zone file checked?
Exiloz reviews the free-zone income trail, tax workings and supporting records before your accountant receives the pack.