Qualifying Free Zone Persons and the Mandatory Audit Requirement Under UAE Corporate Tax Law
Qualifying Free Zone Persons (QFZPs) occupy a privileged but highly regulated position under the UAE Corporate Tax regime. While they may benefit from a 0% Corporate Tax rate on their Qualifying Income, they are subject to strict compliance requirements — including an unconditional obligation to prepare and maintain audited financial statements, irrespective of their revenue level. This obligation is confirmed and consolidated in Ministerial Decision No. 84 of 2025.
The Unconditional Audit Obligation for QFZPs
Under Article 2(1)(b) of MD 84 of 2025, every Qualifying Free Zone Person must prepare and maintain audited financial statements for each Tax Period. There is no revenue threshold. A QFZP with AED 1 million in revenue is subject to the same audit obligation as one with AED 500 million. The 0% preferential tax rate comes with full transparency and accountability requirements.
Why Does the QFZP Status Carry This Requirement?
The QFZP regime allows eligible Free Zone entities to pay 0% Corporate Tax on their Qualifying Income. In exchange, the FTA requires that their financial statements be independently verified to confirm they are correctly segregating Qualifying Income from non-Qualifying Income, that their revenue from Qualifying Activities genuinely meets the conditions in MD 265 of 2023, and that no Excluded Activities are incorrectly reported as Qualifying. Audited statements provide the FTA with the assurance it needs without requiring a full tax audit of every QFZP every year.
Additional Obligations for QFZPs in Distribution Activities
Article 2(3) of MD 84 of 2025 imposes an additional layer of compliance for QFZPs engaged in the distribution of goods or materials in or from a Designated Zone, as defined under MD 265 of 2023. Such entities must comply with any additional procedures prescribed by the FTA — on top of the standard audit obligation. Businesses engaged in trading, distribution, or logistics within Designated Zones should monitor FTA guidance for specific procedural requirements.
QFZP Status and Loss of 0% Rate
Failing to prepare audited financial statements is not just an administrative violation — it may jeopardise the entity's ability to demonstrate compliance with QFZP conditions. Loss of QFZP status means the entity would be taxed at the standard 9% rate on all Taxable Income above the AED 375,000 threshold, plus potential penalties for the period of non-compliance.
Audit Standards Applicable to QFZPs
QFZPs must follow the accounting standards prescribed by MD 114 of 2023 — International Financial Reporting Standards (IFRS) or IFRS for SMEs as applicable. The audit must be conducted by a licensed auditor registered with the Ministry of Economy in the UAE. FTA-registered auditors with experience in the free zone corporate tax regime are strongly recommended.
Timing and Retention
Audited financial statements must be prepared for each Tax Period and retained for a minimum of seven years from the end of the relevant Tax Period, in line with the general record-keeping requirements under the Tax Procedures Law.
How Abdelhamid & Co. Can Help
We provide full audit services for Qualifying Free Zone Persons across all UAE free zones. Our team is experienced in the QFZP regime, the Qualifying Income conditions, and the strict segregation requirements that support the preferential 0% tax rate. We also assist with FTA compliance monitoring for entities in Designated Zones subject to distribution activity rules.
Frequently Asked Questions
Does a QFZP with very small revenue still need an audit?
Yes. The audit obligation for Qualifying Free Zone Persons is unconditional — there is no revenue threshold. Every QFZP must prepare audited financial statements regardless of its revenue level.
Which auditing standards must a QFZP use?
The financial statements must be prepared in accordance with IFRS or IFRS for SMEs (as applicable under MD 114 of 2023) and audited by a Ministry of Economy-licensed auditor in the UAE.
What happens if a QFZP fails to prepare audited financial statements?
In addition to administrative penalties under the Tax Procedures Law, the QFZP may lose its right to claim the 0% Corporate Tax rate, exposing its income to the standard 9% rate.
Are there extra requirements for QFZPs doing distribution in a Designated Zone?
Yes. Article 2(3) of MD 84 of 2025 requires QFZPs engaged in distribution of goods or materials in or from a Designated Zone to comply with any additional FTA-prescribed procedures on top of the standard audit.
Can a QFZP use management accounts to satisfy the audit requirement?
No. The law specifically requires audited financial statements prepared by an independent licensed auditor. Internal management accounts do not satisfy this requirement.
Last reviewed: May 2025 | Reference: Ministerial Decision No. 84 of 2025