18 August 2026 · Threshold
The De Minimis Rule, Explained
A Qualifying Free Zone Person can earn some non-qualifying income without automatically losing its 0% status, but only within the de minimis limit: the lower of 5% of total revenue or AED 5 million in a tax period. Inside that limit, non-qualifying income is simply taxed at 9% on its own, and the rest of the company's qualifying income keeps the 0% rate. Exceed the limit, even briefly or by a small margin, and the consequence is not proportional: the company loses QFZP status for the entire tax period, and 9% then applies to all of its taxable income, including the qualifying income that would otherwise have stayed at 0%. Because the limit is measured against total revenue for the period, it needs to be tracked as revenue comes in, not calculated for the first time at filing.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
How the limit is set
The de minimis limit is the lower of two measures, 5% of total revenue, or a flat AED 5 million, recalculated for every tax period rather than fixed once. For most small and mid-sized free-zone companies, the 5%-of-revenue test is the binding constraint, because their total revenue is well under the level where the AED 5 million cap would take over. Within the limit, non-qualifying income is simply taxed at 9% in isolation, it does not, by itself, disturb the 0% rate applied to the rest of the company's qualifying income.
- Non-qualifying income is capped at the lower of 5% of total revenue or AED 5 million.
- For most smaller free-zone companies, the 5%-of-revenue test is the binding limit, not the AED 5 million cap.
- Within the limit, non-qualifying income is taxed at 9% and does not remove QFZP status on its own.
- The limit is measured per tax period, a comfortable margin one year offers no protection the next.
- Total revenue includes both qualifying and non-qualifying income when calculating the 5% threshold.
Why breaching it is severe
The de minimis rule has no grace zone, there is no partial penalty for breaching it by a small margin. Exceed the limit and QFZP status is lost for the whole tax period, which means 9% applies to all taxable income, not just the non-qualifying income that caused the breach. For a free-zone company with substantial qualifying income, that can turn a small, avoidable excess into a large, unplanned tax bill on revenue that would otherwise have stayed at 0%.
- Exceed the limit and QFZP status is lost for the entire period, not just the excess portion.
- 9% then applies to all taxable income, including qualifying income that would otherwise be 0%.
- A modest breach can produce a disproportionately large tax bill relative to the excess itself.
- There is no way to cure a breach retroactively once the period has closed.
- Monitoring non-qualifying income during the year, not just at year-end, is the only real safeguard.
The 5% test on real numbers
A free-zone logistics company with AED 6 million in total revenue has a de minimis limit of AED 300,000, being 5% of AED 6 million, which is lower than the AED 5 million cap. If AED 280,000 of its revenue comes from non-qualifying sources, it stays just inside the limit: that AED 280,000 is taxed at 9%, and the rest of its income keeps the 0% rate. If non-qualifying income instead reaches AED 320,000, a change of only AED 40,000, the company breaches the AED 300,000 limit, loses QFZP status for the whole period, and 9% applies to all AED 6 million of taxable income, not just the AED 320,000 that pushed it over.
- A AED 6 million revenue company has a de minimis limit of AED 300,000, being 5% of revenue.
- Non-qualifying income of AED 280,000 stays inside the limit and is taxed at 9% on its own.
- An increase of just AED 40,000, to AED 320,000, breaches the limit and removes QFZP status entirely.
- The tax consequence of crossing the line is far larger than the amount that crossed it.
Monitoring non-qualifying income through the year
Because the de minimis limit is a period-end test applied to cumulative revenue, the safest approach is to track qualifying and non-qualifying income as invoices are raised, not to reconstruct the split after the period closes. A running comparison against the 5%-of-revenue threshold flags a company drifting toward the limit early enough to adjust, by declining a mainland-facing contract, restructuring how it is delivered, or simply budgeting for the 9% cost, rather than discovering the breach for the first time at filing.
- Track qualifying and non-qualifying revenue as it is invoiced, not only at period-end.
- Compare the running non-qualifying total against 5% of revenue-to-date throughout the period.
- Flag contracts or income streams that would tip the balance before they are signed, not after.
- Build in a margin below the limit rather than planning to sit right at the edge of it.
Related guides
Frequently Asked Questions
For free-zone companies in Dubai managing their income mix against the de minimis threshold.
What is the de minimis limit?
The lower of 5% of total revenue or AED 5 million of non-qualifying income in a tax period. For most smaller free-zone companies, the 5%-of-revenue test is what actually applies, because their revenue is well below the level where the AED 5 million cap would take over.
What happens if I exceed it?
You lose Qualifying Free Zone Person status for the entire tax period, and 9% then applies to all of your taxable income, including income that would otherwise have qualified for the 0% rate.
Is non-qualifying income always a problem?
No. Within the limit it is simply taxed at 9% on its own and does not disturb your 0% status on the rest of your income. The risk is only in exceeding the threshold, not in having some non-qualifying income at all.
How is the 5% threshold calculated?
It is 5% of your total revenue for the period, qualifying and non-qualifying combined, compared against the flat AED 5 million cap, with the lower of the two figures applying as your actual limit.
Can a single large contract push me over the limit?
Yes, and this is one of the most common ways companies breach it. A mainland-facing or excluded-activity contract that looks manageable in isolation can be enough to tip cumulative non-qualifying income past 5% of revenue.
Should I check my position only at year-end?
No. Because the test is cumulative across the period, checking only at year-end means finding out about a breach when it is too late to do anything about it. Track the running total as revenue comes in.
Can Exiloz monitor this for us?
Yes. We track non-qualifying income against the de minimis limit as it accrues, flag contracts or income streams that risk tipping the balance, and help you plan around the threshold before it is breached.
Stay inside the de minimis limit
Exiloz tracks your non-qualifying income against the de minimis limit through the year, so a single contract does not cost your entire 0% rate.