Lesson 23 of 29

Run the free zone substance assessment

For: Tax managerAbout 9 min

What you will be able to do

This lesson is for the tax manager. For the group's free zone company you will run the yearly substance assessment and read its result: the substance score, the criteria behind it and the de minimis test on non-qualifying revenue.

Before you start

  • You are signed in with the Tax manager role and working in Meridian Souq E-Commerce FZ-LLC, whose licence was registered in lesson 22.
  • You have the year's substance facts: the number of employees in the free zone, yearly spending, office space, where the main income-earning work is done, and revenue split into qualifying and non-qualifying.
  • QFZP means Qualifying Free Zone Person: a free zone business that meets the conditions to pay 0 percent corporate tax on its qualifying income.

Steps

  1. 1

    Open Free Zones and select Substance Assessment

    Working in Meridian Souq E-Commerce FZ-LLC, choose Free Zones in the left menu and select Substance Assessment in the list on the left. A substance assessment is the yearly check that the business really operates in the free zone. None has been run yet.

    • Select Substance Assessment0 (0)
  2. 2

    Select Run Assessment and enter the year and the people

    Select Run Assessment. License shows the licence the assessment is for. In Fiscal Year type 2025. In Employees in FZ type the number of staff working in the free zone, 18, and in Qualified Employees the number with the skills for the core work, 14.

    • Select Run Assessment
    • Type Fiscal Year: 2025
    • Type Employees in FZ: 18
    • Type Qualified Employees: 14
  3. 3

    Enter the spending and the premises

    In Annual Expenditure type what the company spends in a year running the business in the zone: 6400000. In Office Space type the size of its premises in square metres: 420. Tick Physical office in FZ, and tick CIGA conducted in FZ. CIGA stands for core income-generating activities: the main work that earns the income.

    • Type Annual Expenditure (AED): 6400000
    • Type Office Space (sqm): 420
    • Select Physical office in FZ
    • Select CIGA conducted in FZ
  4. 4

    Describe the core activities

    In CIGA Description say what the core work is and who does it. Outsourced CIGA Details is only for work given to another business: name the provider, the services and how they are supervised. Nothing is outsourced here, so leave it empty.

    • Type CIGA Description: Order fulfilment, warehouse coordination and last-mile delivery manage…
    The screen at step 4: Describe the core activities
  5. 5

    Enter the revenue breakdown

    Revenue Breakdown feeds the de minimis test. In Qualifying Revenue type the income from qualifying activities: 9600000 of fulfilment and logistics fees. In Non-Qualifying Revenue type the rest: 310000 of advertising income from the website. In Revenue Sources Description say where each comes from.

    • Type Qualifying Revenue (AED): 9600000
    • Type Non-Qualifying Revenue (AED): 310000
    • Type Revenue Sources Description: Fulfilment and logistics fees from group and other online sellers; adv…
  6. 6

    Select Run Assessment

    Select Run Assessment at the bottom of the form. The AI assistant scores the facts and, after a few seconds, the message Substance assessment completed appears and the result opens: a substance score out of 100, the QFZP eligibility, the confidence and the review status, which is Pending.

    • Select Run Assessment
  7. 7

    Read the criteria breakdown

    Criteria Breakdown shows how the score is made up: employees, expenditure, physical presence, core activities and revenue qualification, each with points and a sentence of explanation. A criterion that loses points tells you where the substance is weakest.

  8. 8

    Read the de minimis check

    De Minimis Check gives the share of revenue that is non-qualifying: 3.13 percent, or 310,000 dirhams, marked Within limits. The limit is the lower of 5 percent of total revenue or 5 million dirhams. Above it, the company loses the 0 percent rate for the year. AI Recommendations underneath suggest what to keep an eye on.

How to check it worked

The assessment detail for 2025 shows a substance score, a QFZP eligibility result, a criteria breakdown and a de minimis check of 3.13 percent marked Within limits, with the review status Pending.

Common mistakes

  • Leaving the two revenue boxes empty. Without qualifying and non-qualifying revenue the de minimis test cannot be worked out.
  • Treating the AI result as final. The assessment says Human Review Required until a person confirms or overrides it with reasons.
  • Counting people who do not work in the free zone. Employees in FZ is the staff based there, and the figure should agree with the payroll list.

Check your understanding

  1. 1. What does the de minimis test check?

    1. A.That the entity has at least five employees
    2. B.That the licence fee is paid
    3. C.That non-qualifying revenue stays within the lower of 5 percent of total revenue or AED 5 million
    4. D.That taxable income is below AED 375,000
    Show answer

    Answer: C. That non-qualifying revenue stays within the lower of 5 percent of total revenue or AED 5 million

    A free zone company keeps the 0 percent rate only while its non-qualifying revenue stays within that limit.

  2. 2. After Run Assessment the result shows Review: Pending. What does that mean?

    1. A.The AI assistant is still working
    2. B.The result is the AI assistant's proposal and is not final until a person confirms or overrides it
    3. C.The licence has expired
    4. D.The assessment failed
    Show answer

    Answer: B. The result is the AI assistant's proposal and is not final until a person confirms or overrides it

    The box Human Review Required says so. The next lessons show who records the review.