Company Formation in Dubai 2026: New Rules, Tax Updates & New Setup Coast.

Qualifying Free Zone Person (QFZP) Rules in 2026: Demystified

Qualifying Free Zone Person (QFZP) Rules 2026 will determine whether a Free Zone company can legally continue to enjoy the 0% corporate tax benefit or becomes subject to 9% UAE Corporate Tax.

As UAE corporate tax enforcement matures, 2026 is expected to mark a shift from theoretical compliance to practical audits. At Wings9, we increasingly see Free Zone owners, CFOs, and foreign companies reassessing whether their existing or planned structures genuinely meet QFZP requirements—or merely assume they do.

This article sits under our Business Setup & Company Formation in Dubai pillar and explains what QFZP means in 2026, who qualifies, who doesn’t, and how to structure correctly from day one.

What Is a Qualifying Free Zone Person (QFZP)? (Quick Answer)

A Qualifying Free Zone Person (QFZP) is a Free Zone entity in the United Arab Emirates that satisfies all conditions under UAE Corporate Tax law, allowing it to be taxed at 0% on qualifying income.

If any single condition is breached, the entity may lose QFZP status and become liable to 9% corporate tax on its entire taxable income.

This distinction is critical when choosing a Free Zone structure.

Why QFZP Rules Matter More in 2026

For many businesses, QFZP has been treated as a post-setup compliance issue. From 2026 onwards, that assumption becomes risky.

Key reasons QFZP rules matter more now:

• Increased audit activity and cross-checks
• Stronger focus on substance over form
• Scrutiny of Free Zone vs Mainland revenue
• Transfer pricing enforcement within groups
• Retrospective reassessments in some cases

In practical terms, company formation decisions made today determine tax exposure tomorrow.

Core Conditions to Qualify as a QFZP in 2026

To retain QFZP status, a Free Zone company must meet all conditions every tax year.

1. Be a Recognised Free Zone Person

The company must:

• Be incorporated in a recognised UAE Free Zone
• Hold valid Free Zone licences
• Operate only within approved activities

Free Zone registration alone does not guarantee QFZP eligibility.

2. Earn Qualifying Income (or Stay Within Permitted Limits)

Qualifying income typically includes:

• Transactions with other Free Zone Persons
• Certain foreign-sourced income
• Approved activities listed under tax regulations

Non-qualifying income may include:

• Direct sales to Mainland UAE customers
• Certain regulated or excluded activities

From a setup perspective, the intended customer base must be evaluated before incorporation, not after.

3. Maintain Adequate Economic Substance

This is the most common failure point we see in practice.

A QFZP must demonstrate:

• Physical office presence
• Adequate number of employees
• Local decision-making authority
• Substance aligned with revenue generation

Free Zone entities created only for invoicing or tax positioning face elevated risk.

4. Prepare Audited Financial Statements

Audited financials are mandatory, not optional.

They must:

• Clearly separate qualifying and non-qualifying income
• Reflect actual business activity
• Align with licensing and substance

Even profitable businesses lose QFZP status due to poor income classification.

5. Comply With Transfer Pricing Rules

If the Free Zone entity transacts with:

• Parent companies
• Sister companies
• Shareholders
• Mainland-based related parties

It must maintain:

• Arm’s-length pricing
• Transfer pricing documentation
• Clear commercial rationale

This is particularly relevant for foreign companies setting up UAE hubs or holding structures.

QFZP vs Non-QFZP: Corporate Tax Impact

Common QFZP Risks Identified During Business Setup

From Wings9 advisory reviews, the most frequent issues include:

• Free Zone companies trading directly with Mainland UAE
• No employees despite high turnover
• Shared or virtual offices with no operations
• Group structures without transfer pricing frameworks
• Assuming “Free Zone = permanent tax exemption”

These are structural issues, not filing errors.

How QFZP Rules Affect Free Zone Company Formation Strategy

When advising clients on business setup in Dubai, Wings9 evaluates QFZP implications at the planning stage, including:

• Jurisdiction selection (Free Zone vs Mainland)
• Activity classification and licensing scope
• Revenue flows and customer geography
• Staffing and substance requirements
• Group ownership and future scalability

Choosing the wrong structure can permanently eliminate the 0% tax advantage.

Practical QFZP Compliance Checklist for 2026

Before or immediately after incorporation, ensure:

• ✔ Approved Free Zone activities
• ✔ Clear revenue classification
• ✔ Adequate office and staff
• ✔ Audited financial statements
• ✔ Transfer pricing policy
• ✔ Commercial rationale documentation

FAQs: Qualifying Free Zone Person (QFZP) Rules 2026

Is QFZP status automatic for Free Zone companies?
No. QFZP eligibility is conditional and reviewed annually.

Can a Free Zone company trade with Mainland UAE?
Only with proper structuring. Direct sales are high-risk.

Does QFZP apply to foreign-owned companies?
Yes, provided all conditions are met.

Should QFZP be assessed before incorporation?
Absolutely. Structure determines tax outcome.

Can QFZP status be lost retroactively?
Yes, during audits or reassessments.

Do CFOs need to be concerned about governance?
Yes. Weak governance increases audit exposure.

Key Takeaways for Decision-Makers

• QFZP rules directly affect Free Zone viability
• 0% tax is conditional, not guaranteed
• Substance and structure matter more than registration
• Early planning prevents long-term tax exposure

Speak to Wings9

If you are planning a Free Zone company formation in Dubai or reviewing an existing structure, QFZP eligibility must be assessed before 2026 enforcement tightens.

👉 Request a QFZP eligibility review
👉 Speak with a Wings9 business setup & tax advisor
👉 Structure your company correctly from day one

At Wings9, we don’t just register companies — we design compliant, future-ready business structures.