UAE clarifies new corporate tax rules for free zones: What Businesses need to know now

UAE Free Zones offer tax breaks, full foreign ownership, and sector-specific benefits, playing a key role in the country’s economic growth/ Image: UAE Ministry of Finance

The UAE has introduced two new ministerial decisions aimed at clarifying how corporate tax rules apply to Free Zone businesses, providing much-needed precision on qualifying activities and acceptable pricing benchmarks. The move replaces a 2023 framework, expands tax-free eligibility, and reinforces the country’s position as a transparent, globally aligned business hub.

New framework for free zone corporate taxation

On September 3, 2025, the UAE Ministry of Finance issued Ministerial Decision No. (229) of 2025 and Ministerial Decision No. (230) of 2025, both of which reshape the landscape of corporate tax treatment for businesses operating within Free Zones. Ministerial Decision No. (229) of 2025 repeals the earlier Ministerial Decision No. 265 of 2023, establishing updated definitions for Qualifying Activities and Excluded Activities under the UAE’s corporate tax law. These updates are particularly significant for companies seeking to benefit from the zero per cent corporate tax rate offered to qualifying Free Zone entities. Complementing this is Ministerial Decision No. (230) of 2025, which formally specifies the Recognised Price Reporting Agencies that companies must use to determine fair market value for qualifying commodities. This ensures transparency in pricing and compliance with international standards. Together, these decisions aim to give Free Zone entities greater legal certainty, enable tax-compliant operational planning, and eliminate ambiguities in the law.

Expanded scope of qualifying activities

A key change introduced by the new framework is a broadened definition of Qualifying Commodity Trading, a core income stream for many Free Zone firms. Previously limited to commodities in raw form, the scope now includes a wider array of goods such as:

Crucially, the update allows these items to qualify even if not in raw form, as long as a transparent, quoted price is available from a recognised source, either a commodity exchange or one of the Price Reporting Agencies identified in Ministerial Decision No. (230) of 2025. The changes not only broaden eligibility but also reflect a push toward sustainability and green finance, with the inclusion of carbon credits under the environmental commodities category. Beyond commodities, the Ministry has also provided clarity on treasury and financing services. These now officially include:

This flexibility is particularly useful for holding companies and multinational groups, many of whom centralise their treasury operations within UAE Free Zones. Another clarification relates to 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 threshold is a set value, usually for imported items, below which no customs duties or taxes are charged because collecting them would cost more than the tax itself. This rule helps make sure that businesses don’t lose their zero-tax benefits when doing socially important work.

UAE corporate tax law and free zone structure

The new decisions follow the introduction of the UAE’s federal corporate tax regime, which took effect on June 1, 2023. Under the law, companies with taxable profits exceeding AED 375,000 (approximately $102,110) are subject to a standard 9% corporate tax rate. Profits below that threshold are taxed at zero per cent. However, businesses in UAE Free Zones can still benefit from a zero per cent rate on qualifying income, provided they meet specific conditions. Previously defined qualifying activities included:

Income from non-qualifying activities or from excluded transactions, such as dealings with the mainland or unrelated parties outside scope, remains taxable at the standard 9% rate. Compliance is not optional: failure to meet qualifying criteria in the first year can disqualify a business from tax exemption for four subsequent years. Therefore, companies are strongly encouraged to reassess their operations, documentation, and transfer pricing in advance of the 2025 filing deadlines.Also read: Companies in select free zones can now buy and own property in Dubai under new deal

Strategic and economic implications

The issuance of these two decisions comes at a time when the UAE is actively balancing its economic competitiveness with the need for transparency and global tax alignment, including adherence to the OECD’s Base Erosion and Profit Shifting (BEPS) framework. The UAE Ministry of Finance, established under Federal Decree No. (2) of 1971, plays a central role in shaping the country’s fiscal and economic development. Under the leadership of His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Prime Minister and Minister of Finance, and His Excellency Mohamed bin Hadi Al Hussaini, Minister of State for Financial Affairs, the Ministry is tasked with enhancing federal budget execution, managing national financial policy, and supporting international economic interests. The Ministry operates through five sectors:

Free Zones remain integral to the UAE’s economic strategy, hosting thousands of global companies across sectors such as logistics, energy, manufacturing, and finance. There are over 40 Free Zones in the UAE, with more than 30 in Dubai alone, including notable examples like:

These zones offer numerous advantages: 100% foreign ownership, full repatriation of profits, no customs duties, no personal income tax, and fast-tracked business setup. Their autonomy and sector-specific focus are central to the UAE’s appeal as a destination for foreign direct investment.The Ministry has reaffirmed that the updated tax rules aim to preserve the benefits of Free Zones while closing potential loopholes. By aligning tax incentives with clear qualifying criteria and transparent, verifiable pricing, the UAE underscores that its zero-tax benefits remain attractive, so long as businesses operate within well-defined, internationally recognized standards.Note: All Cabinet Decisions and MDs relating to the Corporate Tax Law are available on the Ministry of Finance’s website Go to Source