19 August 2026 · Income test
What Counts as Qualifying Income
Qualifying income is the revenue a free-zone company earns that meets the FTA's criteria for the 0% rate under the Qualifying Free Zone Person regime, broadly income from FTA-recognised qualifying activities, transactions with other free-zone persons that meet the relevant conditions, and incidental income that satisfies its own conditions. Everything else is non-qualifying income, which is taxed at the standard 9% rate on its own, and which also counts against the de minimis limit, the lower of 5% of total revenue or AED 5 million. Classifying revenue correctly matters because the split is not a formality: get it wrong, and either you understate tax on income that should have been taxed at 9%, or you push non-qualifying income over the de minimis threshold and lose the 0% rate on everything, including the income that genuinely qualified.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
Income that supports 0%
Qualifying income centres on two things: what the activity is, and who the customer is. Income from an FTA-recognised qualifying activity generally qualifies regardless of the counterparty, while other income can still qualify if it is earned from transactions with another free-zone person, subject to the specific conditions attached to that category. Incidental income, revenue that arises alongside the core qualifying activity rather than from it directly, can also qualify, but only where it meets its own conditions rather than being assumed to follow the main income stream automatically.
- Income from FTA-recognised qualifying activities, largely regardless of the customer.
- Transactions with other free-zone persons, subject to the specific conditions attached.
- Incidental income that independently meets the relevant conditions.
- Correctly documented and substantiated revenue, mapped activity by activity, not estimated in bulk.
- Revenue streams should be reviewed individually, since a single client relationship can span both qualifying and non-qualifying income.
The income that risks your rate
Non-qualifying income includes excluded activities set out in the rules and certain income sourced from mainland UAE customers or activities that fall outside the qualifying-activity list. This income is not simply lost to the 0% rate on its own account, it is taxed at 9%, and more importantly it is measured against the de minimis limit. If non-qualifying income breaches that limit, the consequence is not proportional: the company loses QFZP status entirely for the period, so 9% then applies to all taxable income, including revenue that would otherwise have qualified.
- Excluded activities and certain mainland-source income fall outside the qualifying categories.
- Non-qualifying income on its own is simply taxed at 9%.
- If it breaches the de minimis limit, QFZP status is lost for the whole period.
- Once status is lost, 9% applies to all taxable income, not just the non-qualifying excess.
- A single mainland contract can be enough to tip a company over the de minimis threshold if it is large relative to total revenue.
How mixed income plays out in practice
Take a free-zone trading company with AED 4 million in total revenue for the period. Under the de minimis rule, its non-qualifying income must stay within the lower of 5% of that revenue, AED 200,000, or AED 5 million, so here the limit is AED 200,000. If AED 150,000 of its revenue comes from a mainland contract that falls outside the qualifying-activity list, that income sits inside the limit: it is simply taxed at 9%, and the rest of the company's income still qualifies for 0%. If that mainland contract instead grows to AED 250,000, the company breaches the AED 200,000 limit, loses QFZP status for the whole period, and 9% applies to its entire taxable income, not just the AED 250,000 that caused the breach.
- The de minimis limit for a AED 4 million revenue company is AED 200,000, since that is lower than the AED 5 million cap.
- Non-qualifying income inside the limit is simply taxed at 9%, with the rest still qualifying for 0%.
- The same income just above the limit loses QFZP status for the entire period.
- Tracking non-qualifying income against the limit during the year avoids finding out about a breach only at filing time.
How we classify your revenue
Correct classification starts with mapping each revenue stream to its underlying activity and counterparty, not applying a single rule of thumb across the whole business. We review your contracts and invoicing to separate qualifying activities and free-zone transactions from mainland-facing or excluded income, check the resulting non-qualifying total against the de minimis limit, and flag any stream that is close to tipping the balance before it becomes a filing-time surprise.
- Map each revenue stream to its activity and counterparty before classifying it.
- Separate qualifying free-zone transactions from mainland-facing or excluded income.
- Track the running total of non-qualifying income against the de minimis limit through the year.
- Flag borderline revenue streams early, while there is still time to plan around them.
Related guides
Frequently Asked Questions
For free-zone companies in Dubai classifying their revenue ahead of a corporate tax filing.
What is qualifying income?
Revenue that meets the FTA criteria for the 0% rate, mainly income from qualifying activities and transactions with other free-zone entities, plus incidental income that independently meets its own conditions. It is assessed activity by activity, not assumed across the whole business.
Is all free-zone income taxed at 0%?
No. Only qualifying income is taxed at 0%. Non-qualifying income is taxed at 9%, and if it exceeds the de minimis limit it also puts the company's entire QFZP status, and the 0% rate on everything else, at risk.
How do I know which income is which?
It requires mapping each revenue stream to the qualifying-activity rules and checking the counterparty on free-zone transactions. Exiloz does this classification against your actual contracts and invoicing rather than applying a blanket assumption.
Can incidental income ride on the main qualifying activity?
No. Incidental income has to independently meet its own conditions to qualify, it is not automatically treated the same as the core qualifying activity it arises alongside.
What if one client relationship includes both types of income?
That is common, and it needs to be split rather than classified as one or the other. A consultancy contract, for example, can include free-zone-qualifying advisory work alongside a mainland-facing component that does not qualify.
Does non-qualifying income always cost me the 0% rate?
Not by itself, inside the de minimis limit it is simply taxed at 9%, with the rest of your income still qualifying. The risk is only when non-qualifying income grows past that limit.
Can Exiloz classify our income?
Yes. We split qualifying from non-qualifying income stream by stream, track the running total against the de minimis limit, and flag anything trending toward a breach before filing.
Classify your free-zone income correctly
Exiloz maps qualifying vs non-qualifying income stream by stream and checks it against the de minimis limit, so your 0% rate holds up at filing.