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Qualifying Free Zone Person status now has to be evidenced every year. And for the largest groups, the Domestic Minimum Top-up Tax sets a 15% floor regardless of the 9% headline rate.
DRB Al Hikma Accounting LLC · Business Bay, Dubai · Updated August 2026 · 7 min read
A large share of UAE businesses operate from free zones, and many were established on the understanding that a free zone licence delivers a 0% tax outcome. That was never quite the position, and it is decisively not the position now.
The 0% rate applies to the qualifying income of a Qualifying Free Zone Person. Both terms are defined, and both have to be satisfied in every tax period. The framework sits across secondary legislation. Cabinet Decision No. 100 of 2023 defines what counts as qualifying income, Ministerial Decision No. 229 of 2025 sets out qualifying and excluded activities, and Ministerial Decision No. 84 of 2025 establishes the requirement for a QFZP to prepare audited financial statements. The FTA has continued issuing guidance on QFZP compliance through 2026.
The uncomfortable reality for some businesses is that the analysis has to be contemporaneous. Reconstructing a qualifying income position after the year has ended, from records that were not designed to support it, is difficult and unconvincing.
QFZP status offers a better long-run tax outcome but carries a real compliance load: audited accounts, demonstrable substance, and transfer pricing documentation. For a smaller free zone entity, the cost of holding the status properly may exceed the tax saved, particularly once Small Business Relief lapses after 31 December 2026 and every business has to confront its actual position.
That calculation is worth running explicitly rather than assuming the answer.
At the other end of the market, the UAE Domestic Minimum Top-up Tax applies to UAE entities of multinational enterprise groups with consolidated annual revenue of EUR 750 million or more in at least two of the previous four fiscal years. It is effective for fiscal years beginning on or after 1 January 2025.
The mechanism is a floor. Where the effective tax rate of the group UAE entities falls below 15%, the DMTT tops it up to that level. UAE corporate tax remains at 9%, and the DMTT adds up to a further 6 percentage points where the effective rate would otherwise sit below the floor.
The provisions are intended to align with the OECD Pillar Two model rules, commentary and agreed administrative guidance, which means the calculation follows international rules rather than a purely domestic method.
The practical burden of DMTT is data, not rate. Pillar Two calculations require granular, entity-level information, including covered taxes, GloBE income adjustments and substance-based income exclusion inputs, that standard corporate tax reporting does not produce. Groups that treat DMTT as a year-end exercise usually discover their UAE entities were never set up to generate that data.
There is a meaningful concession. No penalties apply in respect of filing the DMTT return for periods beginning on or before 31 December 2026, but not including periods ending after 30 June 2028, where the MNE group has taken reasonable measures to ensure the correct application of the UAE DMTT provisions.
The condition matters. Relief is tied to reasonable measures, not to inaction. A group that has made a documented, good-faith effort to apply the rules is protected. A group that has done nothing is not obviously within the relief.
Two very different populations, one common theme. The UAE tax system now expects businesses to evidence their position, not simply assert it. Whether that evidence is an audited financial statement supporting free zone qualifying income, or Pillar Two standard data supporting a DMTT calculation, it has to be produced by the accounting process rather than assembled afterwards.
DRB Al Hikma Accounting LLC supports businesses across Dubai and the UAE with accounting and bookkeeping, tax advisory and compliance, corporate services, financial consulting, payroll and audit.
Disclaimer: This article is provided for general information only and reflects publicly available information as at August 2026. It is not tax, legal or accounting advice. Tax legislation, Cabinet Decisions and FTA guidance are subject to change, and the treatment of any business depends on its specific facts. Please confirm your obligations with the Federal Tax Authority or seek professional advice before acting.