The De Minimis Rule for Qualifying Free Zone Persons — MD 229 of 2025 Explained
The de minimis rule is a practical safety valve for Qualifying Free Zone Persons (QFZPs) in the UAE Corporate Tax framework. It allows a QFZP to conduct a small amount of non-qualifying activity without losing its 0% tax status. Ministerial Decision No. 229 of 2025, Article 3, sets the precise parameters of this rule.
What Is the De Minimis Threshold?
Under Article 3 of MD 229 of 2025, the de minimis requirements are satisfied — and QFZP status is preserved — when the non-qualifying revenue derived by the QFZP in a Tax Period does not exceed the lower of:
- 5% of total revenue for that Tax Period, or
- AED 5,000,000 (five million dirhams).
Both limits apply simultaneously. The binding threshold is whichever produces the smaller number. For a QFZP with AED 200 million in total revenue, the 5% cap equals AED 10 million — but the AED 5 million absolute cap overrides it, making AED 5 million the effective maximum non-qualifying revenue.
What Is Non-Qualifying Revenue?
Non-qualifying revenue includes income from excluded activities (banking, insurance, real estate, transactions with natural persons outside exceptions, finance and leasing outside exceptions) as well as income from transactions with non-Free Zone Persons that would otherwise not constitute qualifying income. Qualifying activity income — even if generated by ancillary activities — does not count toward the de minimis threshold.
Consequence of Breaching the De Minimis Threshold
If non-qualifying revenue exceeds the de minimis threshold at any point during a Tax Period, the entity ceases to be a QFZP from the beginning of that Tax Period and for the subsequent four Tax Periods — a total of up to five consecutive periods of disqualification. All income becomes subject to the standard 9% Corporate Tax rate. This is a severe and retroactive consequence, making real-time revenue monitoring essential.
Practical Monitoring Strategy
QFZPs should implement a quarterly revenue segmentation process: (1) classify every revenue stream as qualifying or non-qualifying; (2) calculate the running non-qualifying revenue total against both limits (5% of YTD total revenue and AED 5 million); (3) flag any revenue stream that approaches the threshold; and (4) document the classification basis for audit purposes. An external corporate tax review at mid-year is advisable for entities operating near the threshold.
Frequently Asked Questions
If a QFZP earns AED 3 million from excluded activities out of AED 100 million total, does it pass the de minimis test?
Yes. AED 3 million is 3% of total revenue (below 5%) and below AED 5 million. Both limits are satisfied — QFZP status is preserved.
Can a QFZP earn AED 6 million from excluded activities without losing status?
No. Even if AED 6 million is only 1% of a large total revenue, the absolute AED 5 million cap is breached. The entity would cease to be a QFZP from the beginning of the Tax Period.
Is the de minimis breach retroactive?
Yes. Disqualification applies from the beginning of the Tax Period in which the breach occurs — not from the date it was detected.
How long does disqualification last after a de minimis breach?
The entity loses QFZP status for the breaching Tax Period and the four subsequent Tax Periods. If a QFZP's Tax Period is a calendar year, a breach in 2024 would result in disqualification through 2028.
Does interest income from bank deposits count as non-qualifying revenue?
This depends on whether the interest income falls within the treasury and financing services qualifying activity (Article 2(1)(j)) or constitutes passive interest outside of qualifying activities. Entities should obtain professional advice on the classification of specific income streams.
Last Reviewed: May 2025 | Reference: Ministerial Decision No. 229 of 2025