Determining Qualifying Activities and Excluded Activities for Qualifying Free Zone Persons

For UAE Corporate Tax purposes, a Qualifying Free Zone Person may benefit from a 0% Corporate Tax rate on Qualifying Income, provided all applicable conditions are met. Taxable Income that is not Qualifying Income is generally subject to Corporate Tax at 9%.

Qualifying Activities are activities conducted by a Qualifying Free Zone Person from which Qualifying Income may be derived. Excluded Activities are activities from which Non-Qualifying Income is derived. The current framework is governed by Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025.

Free Zone Persons should therefore carefully assess their activities, customers, income sources, substance, and compliance obligations to determine whether they are eligible for the 0% Corporate Tax rate on Qualifying Income.

What Are the Qualifying Activities?

Under Ministerial Decision No. 229 of 2025, the following activities conducted by a Qualifying Free Zone Person are treated as Qualifying Activities:

• Manufacturing of goods or materials.
• Processing of goods or materials.
• Trading of Qualifying Commodities.
• Holding shares and other securities for investment purposes.
• Ownership, management, and operation of ships.
• Reinsurance services.
• Fund management services.
• Wealth and investment management services.
• Headquarter services provided to Related Parties.
• Treasury and financing services provided to Related Parties or conducted for the Qualifying Free Zone Person’s own account.
• Financing and leasing of aircraft, including aircraft engines and rotable components.
• Distribution of goods or materials in or from a Designated Zone.
• Logistics services.
• Activities that are ancillary to the Qualifying Activities listed above.

Shares and other securities are treated as being held for investment purposes when they are held for an uninterrupted period of at least 12 months.

For distribution activities, the buying and selling of goods or materials must be conducted in or from a Designated Zone. Goods entering the UAE must be imported through the Designated Zone and supplied to a customer that resells, processes, or alters the goods for sale or resale, or to a Public Benefit Entity.

What Are the Excluded Activities?

Under Ministerial Decision No. 229 of 2025, the following activities are treated as Excluded Activities:

• Transactions with natural persons, except transactions relating to qualifying ship activities, fund management services, wealth and investment management services, and aircraft financing and leasing.
• Banking activities.
• Insurance activities, except qualifying reinsurance services and qualifying headquarter services.
• Finance and leasing activities, except where the activity falls within a specifically recognised Qualifying Activity.
• Ownership or exploitation of immovable property, other than Commercial Property located in a Free Zone where the transaction relating to that Commercial Property is conducted with another Free Zone Person.
• Activities that are ancillary to the Excluded Activities listed above.

Income from intellectual property is treated separately. Income from Qualifying Intellectual Property may be treated as Qualifying Income to the extent calculated under the applicable nexus-based rules. Income from non-qualifying intellectual property, and any excess income that does not satisfy the qualifying calculation, is treated as taxable income.

De Minimis Requirement for Non-Qualifying Revenue

A Qualifying Free Zone Person may continue to satisfy the de minimis requirement where its Non-Qualifying Revenue in a Tax Period does not exceed:

• 5% of its total Revenue for that Tax Period; or
• AED 5,000,000,

whichever amount is lower.

Certain revenue is excluded from both Non-Qualifying Revenue and total Revenue when applying the de minimis calculation. This includes specified revenue from immovable property, Domestic or Foreign Permanent Establishments, and intellectual property, except for income from Qualifying Intellectual Property.

Conditions for a Qualifying Free Zone Person

To maintain Qualifying Free Zone Person status, a Free Zone Person must meet all applicable conditions, including the following:

• Maintain adequate substance in the UAE.
• Derive Qualifying Income.
• Not elect to become subject to the standard Corporate Tax rules under Article 19 of the Corporate Tax Law.
• Comply with the arm’s length principle and applicable transfer pricing requirements.
• Keep its Non-Qualifying Revenue within the permitted de minimis threshold.
• Prepare and maintain audited financial statements in accordance with the applicable Corporate Tax requirements.
• Meet any additional conditions prescribed by the Minister.

Maintaining adequate substance generally requires the Qualifying Free Zone Person to conduct its core income-generating activities in the relevant Free Zone or Designated Zone, maintain adequate assets and qualified employees, and incur sufficient operating expenditure in relation to its activities.

If a Qualifying Free Zone Person fails to meet any applicable condition at any time during a Tax Period, it will cease to be treated as a Qualifying Free Zone Person from the beginning of that Tax Period and for the subsequent four Tax Periods.

Overview of Qualifying and Excluded Activities for Free Zone Persons

The following table provides a structured overview of the main rules applicable to Qualifying Free Zone Persons in the UAE:

Seek Assistance from Corporate Tax Consultants in the UAE

Determining whether an activity, transaction, or income stream qualifies for the 0% Corporate Tax rate requires a detailed review of the company’s business activities, customers, income sources, Free Zone location, substance, transfer pricing arrangements, and financial records.

Professional Corporate Tax Consultants in the UAE can assess your eligibility, identify Non-Qualifying Revenue, review the de minimis threshold, and help your business maintain compliance with the Qualifying Free Zone Person requirements. Contact us today to discuss your Free Zone Corporate Tax position.