The de minimis rule: the threshold never to cross

The principle of the de minimis rule

The de minimis rule, set out in Article 4(2) of Cabinet Decision No. 100 of 2023, allows a margin of non-qualifying revenue within a QFZP entity. This tolerance is intended to avoid penalizing predominantly qualifying activities on account of ancillary non-qualifying amounts.

Calculating the threshold

The de minimis threshold is defined as the lower of the following two amounts:

1. 5% of the entity's total revenue.
2. AED 5 million.

Example: for an entity with revenue of AED 50 million, the threshold is 5% × 50 = AED 2.5 million (lower than AED 5 million). For an entity with revenue of AED 200 million, the threshold is AED 5 million (which is the lower of the two: 5% × 200 = AED 10 million versus AED 5 million).

What goes into the numerator?

The numerator (non-qualifying revenue) includes:

• Revenue derived from transactions with UAE residents outside the free zone (except for listed cases).
• Non-eligible real estate revenue.
• Revenue from activities not on the qualifying list.
• Revenue derived from transactions with Free Zone Persons that are not the actual beneficial owners.

Conversely, the following are excluded from the numerator:

• Exempt income (eligible dividends, qualifying capital gains, and so on).
• Revenue from ancillary activities necessary to carry out the qualifying core activity.
• Revenue attributable to a (domestic or foreign) permanent establishment of the QFZP and certain immovable property income: these are excluded from both sides of the ratio and taxed separately at 9% (Cabinet Decision No. 100 of 2023, art. 4).

What goes into the denominator?

The denominator corresponds to the entity's total revenue, excluding exempt income. It is therefore a net fraction: non-qualifying revenue / (qualifying revenue + non-qualifying revenue).

Quarterly monitoring recommended

The rule is assessed over the entire tax year, but quarterly monitoring is necessary to detect a risk of breach in time and to take corrective measures (shifting the non-qualifying activity into a third-party entity, restructuring contracts, temporarily discontinuing an activity).

Consequences of a breach

• Loss of QFZP status for the period of the breach and the four subsequent tax periods (Federal Decree-Law No. 47 of 2022, art. 18(3); Cabinet Decision No. 100 of 2023).
• Taxation under the standard regime: 9% on taxable income above AED 375,000 (Cabinet Decision No. 116 of 2022).
• Inability to regain QFZP status before the penalty period expires.
• Possible retroactive reassessments on prior financial years if the breach reveals irregularities.

Threshold management strategies

• Ring-fencing: isolating non-qualifying activities in a separate entity (mainland or another non-QFZP free zone).
• Contract restructuring: reorganizing flows so that transactions fall within a qualifying category (for example, transactions with other Free Zone Persons that are the beneficial recipients).
• Temporary discontinuation: suspending an ancillary activity if the threshold is being approached.
• Granular cost accounting: allocating each flow at the point of origin to enable real-time monitoring.