Most recently, the UAE’s Ministry of Finance introduced new tax clarifications for free zones. Specifically, this pertains mainly to corporate tax. As a result of decisions, it is evident that the UAE government is committed to making the UAE a competitive and trustworthy business destination. The new updates are provided under Ministerial Decision No. 229 of 2025 and Ministerial Decision No. 230 of 2025. In this blog, we will primarily focus on decision no. 229; however, it is important to refer to the other decision where necessary.
New Tax Clarifications for Free Zones in the UAE
At the outset, there are two main updates concerning the corporate tax for free zone entities in the UAE. Accordingly, we will look into the basics of each update.
Update 1: Ministerial Decision No. 229
This update primarily pertains to qualifying activities, excluded activities, and related guidance. According to tax law, free zones may be subject to a preferential corporate tax rate of 0% on their qualifying income, provided they meet specific conditions (a qualifying free zone person). However, the 0% rate only applies to qualifying activities as defined by the legal framework. This update provides specified details on qualifying activities, including those that were not originally termed as qualifying activities in previous regulations. Initially, free zones could only benefit from a preferential rate if the commodity trading involved goods in raw form. However, a wider range of products is now available.
Update 2: Ministerial Decision No. 230
This update is supplemental to the Ministerial Decision No. 229. It specifies the recognized price reporting agencies that firms can use to attain a quoted price when dealing with qualifying commodities. Overall, both updates provide new tax clarification for free zone entities to enjoy a preferential corporate tax rate.
Implications for Businesses – Qualifying and Excluded Activities
With these new tax clarifications for free zones operating in the UAE, there might be implications depending on the nature of their business and other circumstances. Accordingly, let’s examine some of the key practical details.
Qualifying Activities
Article 2 of the Ministerial Decision (229) details the qualifying activities to attain a preferential rate.
a. Manufacturing of goods or materials.
b. Processing of goods or materials.
c. Trading of qualifying commodities.
d. Holding of shares and other securities for investment purposes.
e. Ownership, management, and operation of ships.
f. Reinsurance services.
g. Fund management services.
h. Wealth and investment management services.
i. Headquarters services to related parties.
j. Treasury and financing services to related parties or for its own account.
k. Financing and leasing of aircraft.
L. Distribution of goods or materials in or from a designated zone.
m. Logistics services.
n. Any activities that are ancillary to the qualifying activities specified above.
Excluded Activities
Clause 2 of the Article details excluded activities, which are as follows.
a. Any transactions with natural persons, except transactions in relation to the qualifying activities specified under points (e), (g), (h), and (k) above.
b. Banking activities.
c. Insurance activities, without prejudice to the qualifying activities specified under paragraphs (f) and (i) above.
d. Finance and leasing activities without prejudice to the qualifying activities specified in paragraphs (c), (e), (j), and (k) above.
e. Ownership or exploitation of immovable property, other than commercial property located in a free zone, where the transaction is with a free zone person.
f. Any activities that are ancillary to the excluded activities specified above.
Additional Conditions for a Qualified Free Zone Person
To enjoy a preferential corporate tax rate of 0%, a free zone entity must fulfill certain conditions to get the status of a qualified free zone person. Moreover, this update requires additional conditions beyond those outlined in the corporate tax law.
A qualifying free zone person must meet the following two additional conditions:
- Its non-qualifying revenue does not exceed the de minimis requirements set out in Article 3 of this Decision (explained below).
- It prepares audited financial statements in accordance with Ministerial Decision No. 84 of 2025 and any subsequent decisions that amend or replace it.
However, if an entity fails to meet these conditions and the ones set out in the corporate tax law, it shall cease to be a qualifying free zone person. The cessation is from the beginning of the relevant tax period and for the subsequent four tax periods.
De Minimis Requirement
The de minimis requirements are considered satisfied when:
a) The non-qualifying revenue of the qualifying free zone person in a tax period does not exceed 5% of their total revenue.
Or
b) AED 5,000,000 (five million dirhams).
Conclusion
The basis of these new tax clarifications for free zones is an expanded definition of qualifying commodity trading. Previously, free zones could only benefit from a preferential rate if the commodity trading involved goods in raw form. However, after this update, there is now a wider range of products available. These might include metals, minerals, chemicals, their by-products, and so on. The important point here is that for items to qualify for preferential tax treatment (a qualifying activity), a quoted price must be available. This means that the item must have a verifiable published price, which can be either available through a recognized commodity exchange or one of the approved price reporting agencies (PRAs) listed under Decision no. 230. This shows the will of the government to make the UAE a transparent and fair tax jurisdiction.
Creative Zone Tax & Accounting (CZTA)
Staying compliant and getting tax relief within the boundaries of tax laws is what businesses look for. The UAE free zones offer massive tax benefits; however, there are conditions to meet, and there is a need to adapt to the updates. Whether you are planning to start a free zone entity or are already operating one, we can assist you in achieving the 0% tax rate. Contact us today.
