| UAE Corporate Tax - Ministerial Decision No. 229 and 230 of 2025: Practical Implications for Free Zone Businesses |
The Ministry of Finance has issued Ministerial Decision No. 229 of 2025, replacing Ministerial Decision 265 of 2023 on Qualifying and Excluded Activities for the purposes of claiming the benefits of Qualifying Free Zone Person (QFZP) regime. This decision is applicable retrospectively from the 1 June 2023 onwards.
This update has direct consequences for Free Zone entities conducting trading, financing, distribution, etc. activities. The key changes are as follows:
| Particulars |
Key Change |
| Qualifying Commodities |
Definition of qualifying commodities has been extended to include metals, minerals, industrial chemical, energy, agriculture commodities and associated by products provided they have a quoted price from a recognised commodity exchange or Recognised price reporting agencies as provided in Ministerial Decision no. 230 of 2025.
Further, Qualifying activity is no longer limited to 'trading in physical raw form', but now it is not only include the general trading and associated financial derivatives trading used to hedge risk involved in such activities but also extended to associated structured financing activity. Further, it has been additionally provided that revenue from distribution, warehousing, logistics or inventory management functions for such entities should not exceed 50%.
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| Insurance & Reinsurance |
Legal basis updated to Decree-Law No. 48/2023 - need to ensure regulatory alignment |
| Treasury & Financing |
Wider scope now covers financing for own account (not just Related Parties). |
| Distribution |
Restriction on supply to 'end use customer' relaxed for a customer who is a public benefit entity. Accordingly, for being treated as a qualifying activity distribution should be either to customers who resells the goods or to a public benefit entity. |
| Intellectual Property (IP) |
Rationalisation of 'uplift expenditures' provided in formula provided for computing Qualifying Income. The language in earlier decision has provided that 'uplift expenditure' means qualifying expenditure increased by 30%, which would mean that uplift expenditure is 130% of qualifying expenditure. Now, language clarified that it would be only 30% of qualifying expenditure. |
| Audited Financial Statements |
Specific reference added for Ministerial Decision no. 84 of 2025 and any decision which amends or replaces the same. |
| Repeals |
Ministerial Decision no. 229 formally repeals Ministerial Decision no. 265 |
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Our Comments
Some of the above changes-particularly those relating to Qualifying Commodities-may significantly impact the eligibility of free zone entities to claim the 0% corporate tax rate. Given that the deadline for filing the first corporate tax return is less than a month away for taxpayers following the calendar year as their tax period, many entities may have already filed their returns based on the earlier understanding of the law.
Taxpayers especially the ones trading in Qualifying Commodities would have to reassess their tax position and if required, they may have to amend their tax return. It remains to be seen as to whether taxpayers are provided additional time by extending the timelines for filing tax returns.
Overall, while the amendments are welcome and may help taxpayers but due to timing of the amendments, taxpayers may have to take decisions quickly on the tax position to meet the timelines.
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