The United Arab Emirates has made significant strides in clarifying its corporate tax framework for free zone businesses, providing much-needed guidance that will impact thousands of companies operating in the UAE’s numerous free zones. In September 2025, the Ministry of Finance issued two crucial ministerial decisions that expand qualifying activities and provide clearer guidance on pricing methodologies, marking a pivotal moment for free zone businesses navigating the UAE’s evolving tax landscape.
Major Policy Updates: What’s Changed?
The UAE Ministry of Finance has introduced substantial changes through two key ministerial decisions that replace previous regulations and provide expanded clarity for free zone operations.
Ministerial Decision No. 229 of 2025: Qualifying and Excluded Activities
The Ministry of Finance (MoF) announced the repeal of Ministerial Decision No. 265 of 2023, replacing it with Ministerial Decision No. 229 of 2025 on Qualifying Activities and Excluded Activities, which clarifies the scope of Qualifying Activities for Corporate Tax purposes in Free Zones. This represents one of the most significant updates to the UAE’s free zone tax regime since the introduction of corporate tax in 2023.
Ministerial Decision No. 230 of 2025: Recognized Price Reporting Agencies
The second decision addresses commodity pricing mechanisms, establishing clear guidelines for how free zone businesses should approach pricing for qualifying commodity trades. This decision is particularly important for trading companies operating in free zones.
Expanded Scope of Qualifying Activities
One of the most significant changes in the new regulations is the expansion of what constitutes qualifying activities for free zone businesses. The updates provide greater flexibility and opportunities for businesses to benefit from the preferential tax treatment.
Commodity Trading Liberalization
The new decision clarifies the scope of the trading of Qualifying Commodities by removing the term “in raw form” and instead allowing the trading of metals, minerals, industrial chemicals, energy and agricultural commodities and Associated products. This change represents a major shift from the previous restrictive interpretation.
Under the updated rules, free zone businesses can now trade in metals, minerals, industrial chemicals, energy commodities, agricultural products, and their associated by-products. The removal of the “raw form” restriction significantly broadens the scope of eligible trading activities.
New Categories of Qualifying Activities
The new rules expand the scope of Qualifying Commodity Trading to include industrial chemicals, environmental commodities, and Associated By-products, and provide updates on Treasury and financing services for Related Parties.
The expanded categories now officially include:
- Metals and minerals trading
- Industrial chemicals
- Environmental commodities
- Energy commodities
- Agricultural products
- Associated by-products of the above categories
Enhanced Distribution Activities
Companies based in designated Free Zones may now distribute goods or materials to public benefit entities without breaching the de minimis threshold. This clarification provides important guidance for free zone companies engaged in distribution activities, particularly those working with charitable organizations or government entities.
Understanding the Corporate Tax Framework for Free Zones
To fully appreciate these changes, it’s essential to understand how the UAE’s corporate tax system applies to free zone businesses.
Zero Percent Tax Rate Conditions
Under the corporate tax framework, Free Zone businesses may qualify for a zero per cent tax rate on certain income if they meet strict conditions. However, income from “excluded activities” or non-qualifying transactions may still be taxed at the standard nine per cent rate.
This dual-rate system means that free zone businesses must carefully manage their activities to ensure they qualify for the preferential treatment while remaining compliant with all requirements.
Consequences of Non-Compliance
For businesses that fail to meet the qualifying criteria, the implications are significant. Free Zone Persons who don’t qualify will be treated as ordinary Taxable Persons and be subject to Corporate Tax at the rate of 9% on their Taxable Income above AED 375,000. Additionally, this status may be imposed for a period of five years, making compliance crucial for long-term tax planning.
Key Implications for Different Types of Businesses
The new clarifications have varying impacts depending on the nature of a free zone business’s operations.
Trading Companies
Trading companies are among the biggest beneficiaries of these changes. The removal of the “raw form” restriction means that companies can now engage in value-added trading activities while still qualifying for the zero percent tax rate. This includes:
- Processing and refining operations
- Blending and mixing activities
- Packaging and repackaging services
- Quality enhancement processes
Manufacturing and Industrial Operations
Industrial companies operating in free zones now have greater clarity on what constitutes qualifying activities. The inclusion of industrial chemicals and environmental commodities in the qualifying categories opens new opportunities for chemical manufacturers and environmental technology companies.
Financial Services Companies
The updates to treasury and financing services for related parties provide important clarification for financial services companies operating in free zones. However, these companies must still ensure that their primary activities align with qualifying criteria.
Distribution and Logistics Companies
Distribution companies benefit from the clarification regarding transactions with public benefit entities. This change removes previous ambiguity that may have prevented legitimate distribution activities from qualifying for preferential tax treatment.
Compliance Considerations and Best Practices
With these new clarifications come important compliance requirements that businesses must carefully consider.
Documentation Requirements
Free zone businesses must maintain comprehensive documentation to demonstrate that their activities qualify for preferential tax treatment. This includes:
- Detailed records of all trading activities
- Documentation of commodity specifications and processing activities
- Evidence of compliance with pricing methodologies
- Proof of adherence to de minimis thresholds
Regular Review of Business Activities
Given the complexity of the qualifying activity criteria, businesses should regularly review their operations to ensure continued compliance. This is particularly important for companies that engage in multiple types of activities.
Professional Advisory Services
The complexity of the new regulations makes professional tax advisory services more important than ever. It is advisable for Free Zone Persons to seek the services of Corporate Tax advisors to ensure full compliance with the new requirements.
Strategic Opportunities and Planning
The expanded scope of qualifying activities creates new strategic opportunities for free zone businesses.
Business Restructuring Opportunities
Companies that previously operated outside the qualifying activity framework may now be able to restructure their operations to take advantage of the zero percent tax rate. This could involve:
- Reorganizing trading activities to focus on newly qualifying commodities
- Establishing dedicated divisions for qualifying activities
- Restructuring supply chains to optimize tax efficiency
Investment Planning
The certainty provided by these clarifications enables better long-term investment planning. Companies can now make informed decisions about expanding operations in free zones, knowing that their activities will qualify for preferential tax treatment.
Cross-Border Structuring
The expanded qualifying activities create new opportunities for international businesses to structure their operations through UAE free zones while maintaining tax efficiency.
Industry-Specific Impacts
Different industries will experience varying impacts from these regulatory changes.
Oil and Gas Sector
The energy commodities sector benefits significantly from the expanded qualifying activities. Companies involved in oil, gas, and renewable energy trading can now engage in more sophisticated trading strategies while maintaining tax benefits.
Mining and Metals
The clarification regarding metals and minerals trading removes previous uncertainties and enables more comprehensive mining and metals trading operations.
Chemicals Industry
The specific inclusion of industrial chemicals as qualifying commodities provides important clarity for the chemicals sector, enabling companies to engage in complex chemical trading and processing activities.
Agriculture and Food
Agricultural commodity traders benefit from the expanded scope, particularly regarding processed agricultural products and associated by-products.
Looking Forward: Future Considerations
While these clarifications provide important guidance, businesses should remain aware of the evolving nature of the UAE’s tax regime.
Ongoing Regulatory Development
The UAE’s corporate tax system is still relatively new, and further clarifications and updates are likely as the system matures. Businesses should stay informed about additional guidance and regulatory changes.
Integration with International Standards
As the UAE continues to align its tax system with international standards, businesses should consider how future changes might impact their operations and planning strategies.
Technology and Digital Transformation
The UAE’s focus on becoming a global technology hub may lead to future clarifications regarding digital and technology-related activities in free zones.
Conclusion
The UAE’s recent clarifications to corporate tax rules for free zones represent a significant step forward in providing certainty and expanding opportunities for businesses operating in these strategic economic zones. The new Ministerial Decision No. 229 of 2025 on Qualifying and Excluded Activities clarifies and expands the scope of commodities and activities eligible for the preferential corporate tax treatment, while the companion decision on pricing methodologies provides important operational guidance.
For businesses operating in or considering establishing operations in UAE free zones, these changes create new opportunities while requiring careful attention to compliance requirements. The expansion of qualifying activities, particularly the removal of the “raw form” restriction for commodity trading, opens doors for more sophisticated business operations while maintaining access to the zero percent corporate tax rate.
Success in navigating these new regulations will require careful planning, comprehensive documentation, and often professional advisory support. However, for businesses that can effectively align their operations with the expanded qualifying activity criteria, the potential benefits are substantial.
As the UAE continues to position itself as a global business hub, these clarifications demonstrate the government’s commitment to providing a clear, business-friendly tax environment that supports economic growth while maintaining international compliance standards. The timing of these updates, coming just as businesses are fully adapting to the corporate tax system, provides important clarity that will support continued economic development in the UAE’s free zones.
Companies should act promptly to review their current operations against the new criteria and consider strategic opportunities that may have emerged from these expanded qualifying activities. With proper planning and compliance, businesses can maximize the benefits of these important regulatory clarifications while contributing to the UAE’s continued economic success.
