The UAE has recently changed its corporate tax regulations for companies in free zones. These zones were previously regarded as tax-free areas. On 28 August–3 September 2025, the Ministry of Finance issued Ministerial Decision No. 229 of 2025 (Qualifying & Excluded Activities) and Ministerial Decision No. 230 of 2025 (Recognised Price Reporting Agencies). MD 229 repeals MD 265 of 2023 and applies from 1 June 2023. These regulations specify which activities are eligible for the 0% tax rate. Therefore, if you want your business to retain the 0% rate, you need to meet certain conditions.
These decisions clarify which activities qualify for the 0% rate, define “Qualifying Commodities,” and require the use of recognised price reporting agencies for transparent pricing. They also align the UAE’s regime with OECD global standards on transparency and fair taxation, making free zones more appealing for businesses. Moreover, they promote fairness and transparency and reduce the chance of tax abuse.
Continue to read this blog to know about the UAE updates corporate tax rules for certain free-zone companies.
What Are Tax Updates?
Tax updates are changes in tax rules, guidelines, or laws. These rules help businesses understand their tax activities and how to follow government rules. It is also helpful for global investors because of clearer and more trustworthy tax laws. The tax includes
- Clarify which activities are tax-free in free zones
- Align UAE tax rules with global standards
- Support economic diversification and transparency
What Are Free Zones in the UAE?
Free zones are special areas in the UAE where businesses get big benefits:
- 0% corporate tax on eligible income
- 100% foreign ownership
- Fast licensing and setup
- No import/export tax
- Full profit and capital repatriation
- Great infrastructure and rules designed for business
These zones attract businesses from all over the world. They offer significant tax advantages and a business-friendly setup environment.
Types of Free Zones in the UAE
The UAE has over 40 free zones, each with specific benefits. Here are common types:
- Industry-Specific Free Zones
- Example: Jebel Ali Free Zone (JAFZA). It supports trade and logistics and offers 0% tax on qualifying income. It plays a vital role in Dubai’s economy, contributing 24% of the total FDI flow into the emirate. About to explore more about why JAFZA is the best choice for businesses? You can read further to learn more about JAFZA.
- Dubai Healthcare City focuses on healthcare firms.
- Financial Free Zones
- Example: Dubai International Financial Centre (DIFC) offers full regulatory independence with its own legal system.
- Technology & Media Free Zones
- Examples: Dubai Internet City and twofour54 in Abu Dhabi.
- General Business Free Zones
- Examples: DMCC, Sharjah Airport Free Zone.
Each zone meets different business needs. However, all must follow the updated corporate tax structure now.
Limitations of Free Zone Companies
While free zones offer major tax and ownership benefits, there are still a few limits to keep in mind:
- No direct mainland trade
Free zone companies cannot sell directly in the UAE mainland. For this process, you either need a local distributor or you must open a mainland branch. - Office space requirement
You must rent a physical office space inside the free zone where you are registered.
New Update: Dual Licensing & 2025 Updates
Dubai has introduced the One Freezone Passport initiative in July 2025, under the Dubai Free Zones Council (DFZC). This reform allows a company licensed in one free zone to expand into other participating free zones in Dubai using the same trade licence, without the need for full re-incorporation or getting duplicate licences in every zone.
Key Features & Restrictions
- Unified Licensing Across Zones: The primary licence from an existing free zone can be used to operate in secondary free zones under the One Freezone Passport. The business activities in the secondary zone must match those allowed under the primary licence.
- Sectors Excluded: Some sectors are excluded. These include retail, regulated financial institutions, Designated Non-Financial Businesses and Professions (DNFBPs).
- Workforce and Office Limitations:
- Companies cannot transfer staff into or hire new employees specifically for secondary free zones under this passport scheme.
- Use of virtual offices, flexi desks, hot desks, shared spaces, or business centres in secondary zones is not permitted.
- Consistency Requirements: Shareholders, directors, and management must remain the same across primary and secondary zones; the licensed activities must be identical between zones.
Are you thinking about setting up a business in a UAE Free Zone? You can check out our Company Formation Services to explore the best structure for your business goals.
How to Get a Free Zone Company License
As an entrepreneur, you can engage in any type of commercial activity or business within an approved region. This is possible with a free zone licence in the UAE. It serves as a legitimate company document. To do so, you must apply for a specific free zone licence corresponding to the company’s activities. Once registered, you will receive a licence from the relevant free zone authority. Additionally, it is important to choose the appropriate business activity when establishing a firm.
What are the New UAE updates to Corporate tax rules?
Ministerial Decision No. 229 of 2025
- The first update, Ministerial Decision No. (229) of 2025, replaces an earlier ruling from 2023. Defines new qualifying and excluded activities in free zones.
- The previous “raw form” expectation no longer applies; processed metals, minerals, industrial chemicals, energy, and agricultural commodities, plus environmental commodities, can qualify where a quoted price exists. But now, processed items like metals, industrial chemicals, energy products, agricultural commodities, and even associated by-products can qualify. So long as they carry a quoted price.
- More focus on environmental factors. For example, things like carbon credits (environmental commodities) are now included. It is showing the UAE’s move toward green finance.
- MD 229 confirms that treasury and financing services to related parties, or for a free zone entity’s own account, can be qualifying activities.
- Updates also introduce the de minimis threshold. Means the non-qualifying revenue must not exceed 5% of total revenue or AED 5 million, whichever is lower.
- Activities like self-investment and related-party financing. Now qualify and offering flexibility for holding groups and treasury operations.
- Distribution in or from a Designated Zone can include supplies to public benefit entities, but this does not override the de minimis cap, stay within 5% or AED 5m to preserve QFZP status. This aligns support for social causes with tax compliance.
Ministerial Decision No. 230 of 2025
- The second is Ministerial Decision No. (230) of 2025.
- This decision names the official Price Reporting Agencies (PRAs). Whose published quoted prices qualify for these commodities.
- Companies must also follow UAE transfer pricing rules, including maintaining a Master File and Local File if revenue thresholds are met.
- The goal of this update is to ensure pricing is transparent and globally aligned.
- So businesses can rely on fair benchmarks for tax purposes
- Lists the Price Reporting Agencies (PRAs). They are recognised for confirming fair pricing of commodities. Only prices from these agencies qualify for the tax rules.
Why These Updates Matter
More ways to qualify:
Your businesses deal in broader commodity categories. For example, chemicals, energy, and environmental credits can now benefit from 0% tax.
Pricing clarity brings confidence:
Knowing which PRAs are recognized helps firms confidently document pricing and compliance.
Supports economic diversification
These updates align with the UAE’s goal of growing sectors beyond oil. Especially in trade, sustainability, and finance.
How to Maintain 0% Free Zone Tax Status
To keep your free zone company eligible for the 0% corporate tax rate under the new rules, make sure you:
- Register as a Qualifying Free Zone Person (QFZP) with the FTA.
- Earn only qualifying income (commodity trading, treasury, intra-group financing, etc., under Decision 229).
- Stay within the de minimis limit, like non-qualifying income must be ≤ 5% of total revenue or AED 5M (whichever is lower).
- Use recognized PRAs (as listed under Decision 230) for commodity pricing to prove transparency.
- Maintain economic substance by having a local office, employees, and real activity in the UAE free zone.
- Maintain proper records; audited financial statements are mandatory under MD 84 of 2025 as referenced by MD 229.
- Apply transfer pricing rules. The transactions with related parties must follow the arm’s length principle.
- File corporate tax returns on time, within 9 months after the financial year-end.
- If you received a late registration penalty, it can be waived or credited if you submit your first CT return within 7 months after the end of your first tax period.
- Review your license regularly and make sure your business activity still matches qualifying activities.
Broader Tax Context in UAE 2025
Current corporate tax rates:
- 0% for income up to AED 375,000
- 9% for income above that threshold
Qualifying Free Zone Person (QFZP) status:
To get a 0% rate, businesses must:
- Be registered in a free zone
- Maintain substance (e.g., local office, staff)
- Earn qualifying income
- Follow transfer pricing rules and maintain audited IFRS financials
- Respect de minimis thresholds
Penalty waiver:
Businesses get relief from AED 10,000 fines if they file within seven months of their first tax period. This promotes compliance.
Foreign tax credit:
With the new update, companies can now claim credit for tax paid abroad, up to the UAE tax amount.
Minimum top-up tax:
From January 2025, large multinationals are subject to a 15% Domestic Minimum Top-up Tax in line with the OECD minimum tax rules.
Ready to Secure Your 0% Free Zone Tax Status?
The UAE updates corporate tax rules, giving you immense benefits with opportunities and compliance needs. You can retain your business tax benefits under Decision No. 229 of 2025 and Decision No. 230 of 2025. It helps to ensure your pricing, records, and substance are fully aligned.
Need professional guidance? Let the expert corporate consultants at Bestax help you:
- Review if your business meets the new qualifying criteria
- Help with PRAs, pricing, and transfer pricing documentation
- Assist with tax filings, penalty waivers, and compliance
Contact Bestax today to keep your free zone tax advantages intact!
Quick FAQs
1. What does Ministerial Decision No. 229 of 2025 change for free zone businesses?
The update removes the “raw form” rule. Adds new qualifying commodity types. Includes treasury/financing services. Also clarifies the permitted share of non-qualifying income.
2. What commodity trading qualifies under the new rules?
Now includes metals, minerals, industrial chemicals, energy, agricultural goods, by-products, and environmental commodities.
3. How is the concept of “raw form” removed in the updated tax guidance?
With the UAE updating its corporate tax rules. Under Decision 229, processed or refined commodities can qualify. If there is transparent pricing, remove the need for raw-only goods.
4. Which pricing agencies are recognized under Ministerial Decision 230?
Decision 230 includes a list of recognized PRAs. These agencies must be used for pricing in qualifying transactions.
5. What are de minimis thresholds, and why do they matter for free zone companies?
Non-qualifying income must not exceed 5% of total revenue or AED 5 million. Exceeding this threshold risks losing 0% tax status.
6. Can free zone companies now benefit from zero-percent tax on treasury services?
Yes, the treasury and related-party financing now qualify under the new ruling. They now get the benefit of 0% tax.
7. What next steps should businesses in free zones take to stay compliant?
Review if your activities qualify under the new rules
Use only quoted prices from recognized PRAs
Document transfer pricing and maintain financial records
Ensure substance, file returns on time (including using penalty waiver if applicable)
8. Does Bestax UAE offer advisory on these latest corporate tax updates?
Yes. BestaxCA provides corporate tax advisory services that help businesses understand free zone eligibility, QFZP status, filing requirements, penalties, and overall compliance.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
