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30 November 20237 minute read

UAE issues new Decisions on Free Zone Tax Regime


In the last week of October 2023, the UAE Ministry of Finance issued Cabinet Decision No. (100) of 2023 and Ministerial Decision No. (265) of 2023 regarding the tax regime applicable for Free Zone businesses (Decisions). These Decisions repeal Cabinet Decision No. (55) of 2023 and Ministerial Decision No. (139) of 2023, which were both issued on 1 June 2023, the date on which the UAE’s Corporate Income Tax (CIT) regime entered into force. The new Decisions include further clarification on, and important amendments to, the Free Zone Tax Regime.

The new Decisions are relevant for Free Zone businesses that want to benefit from the CIT regime’s 0% rate, applicable to those that are Qualifying Free Zone Persons (QFZPs), provided all conditions are met (please see our previous article for further information). We have summarized the most important clarifications and amendments of the new Decisions below.


Qualifying Intellectual Property

The Cabinet Decision stipulates that Qualifying Income shall now include income derived from the ownership or exploitation of Qualifying Intellectual Property. This inclusion aims to accommodate QFZPs that earn income from intellectual property (IP) assets, such as patents, copyrighted software and any right functionally equivalent to a patent, among others. Marketing related IP assets, such as trademarks are specifically excluded. The new Ministerial Decision removes IP activities from the Excluded Activities list, which is a welcome relaxation for QFZPs with the relevant IP assets. Further, a newly introduced formula calculates the amount of 0% taxed Qualifying Income, which directly correlates with the investments made by the QFZP in Research and Development (R&D) activities.


Trading of Qualifying Commodities

The list of Qualifying Activities has been expanded with a new activity called ‘Trading of Qualifying Commodities’. This activity covers both physical trading and derivative trading of Qualifying Commodities. Qualifying Commodities include metals, minerals, energy, and agriculture commodities, provided these are traded on a recognized commodities exchange market.


Holding of shares and other securities

An important clarification has been provided for the Qualifying Activity of “holding of shares and other securities”, where such assets are held for “investment purposes”. Shares and other securities are considered as being held for investment purposes when they are held for an uninterrupted period of at least twelve (12) months.

The following financial assets fall within the scope of this Qualifying Activity:

  • Category 1: Shares of any class in the share capital of another juridical person or other types of equitable interest that entitle the holder to receive profits and liquidation proceeds.
  • Category 2: Negotiable or non-negotiable1 financial instruments2.

Following the Ministry of Finance’s release of a public consultation paper on the Free Zone tax regime, it was initially expected that the scope of this Qualifying Activity would be limited due to the implementation of several additional conditions. However, with the introduction of new regulations, the scope of this activity has been widened significantly, allowing QFZPs to benefit from a 0% tax rate on income derived from shares and other securities.


Headquarter services to Related Parties

The Ministerial Decision clarifies that Headquarter services to Related Parties include the administering, overseeing and managing of Business Activities of Related Parties, including the provision of senior and general management, captive insurance services, administrative services, procurement services, business planning and development, risk management, coordination of group activities, and in general incurring expenditures on behalf of Related Parties and providing other support services to Related Parties. In line with the previous Decision, this clarification is very helpful for the multitude of QFZPs that perform headquarter functions for regional groups.


Logistics services

The previously included Qualifying Activity of Logistics services has now been defined as including the storage and transportation of goods or materials on behalf of another Person without taking title to the good or material of that other Person, including cargo handling, warehousing, container storage, transport agency services, customs brokerage services, order and inventory management, freight forwarding and brokerage services, document preparation, packing and unpacking and other related services.


Substance requirements

The new Decisions have modified and expanded on the substance requirements for QFZPs.

Cabinet Decision No. 100 of 2023 now provides a clearer definition of what constitutes core income-generating activities. It emphasizes that these should be significant functions that drive business value, and not merely support activities. This clarification helps businesses better understand and comply with substance requirements, as not all activities are considered core income-generating activities.

Under the previous decisions, QFZPs were required to undertake core income-generating activities within a Free Zone, with adequate assets, qualified employees, and operating expenditures. Outsourcing was allowed to either a Related Party or a third party within the same Free Zone, under the condition of adequate supervision by the QFZP. The new decision stipulates that core income-generating activities must be conducted in a Free Zone or a Designated Zone, depending on where such activities are required to be conducted. In our view, this limits the geographic scope where certain activities can be conducted. For example, would entail that a QFZP cannot outsource a Qualifying Distribution activity to an outsourcing provider established in a Free Zone, given the fact that this activity needs to be conducted within a Designated Zone.

A notable addition is the specific provision for outsourcing activities related to Qualifying Intellectual Property. These can now be outsourced to any person within the UAE (including related parties) or to non-related parties outside the UAE, provided the QFZP has adequate supervision of the outsourced activity. This significantly expands the outsourcing possibilities for IP-related activities.


Final observations

The new Cabinet and Ministerial Decisions reflect much of the previous, and now repealed, Free Zone Tax regulations from 1 June 2023. The Decisions also confirm some of the positions included in the Public Consultation document of July 2023. Most importantly though, the latest Decisions provide very useful clarification, and introduce specific changes, in relation to the UAE’s Free Zone Tax Regime. Free Zone businesses are advised to closely review these updated regulations to determine their position under the UAE’s CIT regime.

However, it is noteworthy that these Decisions lack explicit confirmation regarding the inclusion of ‘high sea sales’ or ‘direct shipments’ within the scope of the qualifying activity of ‘Distribution of goods or materials in or from a Designated Zone’. In the public consultation document previously issued by the UAE Ministry of Finance, it was clarified that such transactions would constitute a qualifying activity. This involves scenarios where a Designated Free Zone Person purchases goods from a manufacturer in Country A and sells them to a retailer in Country B, with the goods being shipped directly from Country A to Country B without entering the UAE. This direct shipment method was earlier confirmed as a qualifying activity. The absence of this specific confirmation in the latest Decisions leaves a degree of ambiguity for businesses engaged in such transactions, and they are advised to seek clarity on this aspect to ensure compliance and optimally benefit from the Free Zone Tax Regime.



The new Cabinet and Ministerial Decisions represent a significant update to the UAE’s Free Zone Tax Regime, offering clarity and expansion in key areas like, Holding of Shares and Other Securities, Intellectual Property and Qualifying Commodities trading.

However, the ambiguity surrounding ‘direct shipments’ as a qualifying Distribution Activity requires attention. Businesses in Free Zones should closely monitor any further clarifications from the UAE Ministry of Finance, especially regarding this aspect.

1‘Negotiable’ and ‘non-negotiable’ instruments are terms used in the context of financial instruments to describe the ease and rules with which these instruments can be transferred from one party to another.
2The term ‘financial instruments’ includes a broad range of financial assets, such as derivative instruments, financial commodities, and other investment instruments that are or can be traded in a public or private market or that are convertible or exchangeable into a security or which confer a right to purchase a security. A notable exclusion includes asset-backed securities arising from non-financial asset receivables.