Ministry of Finance issues third generation Free Zone Tax Regulations September 2025

Background

 

The Free Zone Tax Regime allows eligible taxpayers to access a 0% Corporate Income Tax (CIT) rate, provided all statutory conditions are met. The UAE first published the Free Zone implementing decisions on 1 June 2023. These were repealed and replaced in of October 2023, notably by Cabinet Decision No. (100) of 2023 and Ministerial Decision No. (265) of 2023. With Ministerial Decision (MD) No. (229) of 2025 Regarding Qualifying Activities and Excluded Activities, the Ministry of Finance (MOF) has now issued a third iteration of the Free Zone regime decisions, expressly repealing MD No. (265) of 2023.

 

MD No. (229) applies retroactively from 1 June 2023 and also cross-references Ministerial Decision No. (84) of 2025 on audited financial statements. Together with MD No. (230) of 2025 on Specification of Recognised Price Reporting Agencies, further refine the scope of key qualifying activities under the Free Zone Tax Regime.

 

At a glance

MD No. (229) reshapes three qualifying activities:

• Trading of Qualifying Commodities;
• Treasury and financing services to Related Parties or for its own account; and
• Distribution of goods or materials in or from a Designated Zone.

 

It also aligns the audited-accounts condition by explicitly pointing to MD No. (84) of 2025 on audited financial statements¹ , rather than the generic reference to “any decision issued by the Minister” under the previous decision.

 

Trading of Qualifying Commodities

 

The most significant changes in MD No. (229) of 2025 concern the Qualifying Activity “Trading of Qualifying Commodities.” Under the previous rules there was widespread uncertainty around the requirement that commodities be traded “in raw form.” Although “raw form” was commonly understood to mean unaltered or unprocessed, the FTA’s Corporate Tax Guide for Free Zone Persons also noted that commodities should be in a form traded on a Recognized Commodities Exchange Market and that some degree of processing may be necessary to meet trading standards. This tension between minimal processing seemingly being allowed, but the degree of allowed processing remaining undefined led many trading businesses to seek clarifications from the FTA and created material doubt as to which business qualified for this activity.

 

MD No. (229) resolves this by moving away from the “raw form” concept and anchoring eligibility to an objective pricing test. The decision also introduces new definitions, including “Quoted Price,” “Associated By-product,” “Related Commodity,” and references the Common Schedule for Classification and Coding of Goods, which provide further clarity regarding the scope of this activity.

 

In addition to metals, minerals, energy and agricultural commodities, the term 'Qualifying Commodities' now explicitly includes industrial chemicals and their associated by-products, while products packaged for retail sale are excluded. A new category “environmental commodities” is also introduced, covering tradeable instruments that represent an environmental benefit, such as carbon credits and renewable energy certificates. The decisive criterion is now the existence of a Quoted Price for the commodity (or a Related Commodity), either on a Recognized Commodities Exchange Market or from a Recognized Price Reporting Agency. MD No. (230) of 2025 operates alongside this change by specifying the recognized agencies, thereby offering an alternative to exchange quotation for evidencing a market price.

 

MD No. (229) also widens the scope of the activity beyond physical trading itself. In addition to associated financial derivatives trading used for hedging the risks of qualifying positions, the decision now expressly includes associated structured commodity financing activity, such as prepayments, factoring, forfaiting, countertrade, warehouse-receipt financing, export receivable financing, project finance, Islamic trade finance and streaming financing, where these are integral to the qualifying trading model.

 

At the same time, an important exclusion is introduced: a Qualifying Free Zone Person (QFZP) will be excluded from the 0% rate on qualifying commodity trading if 51% or more of its revenue for the relevant tax period is derived from distribution, warehousing, logistics or inventory-management functions. While such entities may still qualify under the separate “distribution in or from a Designated Zone” activity, they cannot rely on the commodity trading limb for the 0% rate if their revenue mix is predominantly logistics-driven.

 

Treasury and financing services now also “for the taxpayer's own account”

 

MD No. (229) of 2025 relabels this qualifying activity to make explicit that a Qualifying Free Zone Person can perform treasury and financing services “to Related Parties or for its own account.” This addition addresses a practical point that had already surfaced in the FTA’s Corporate Tax Guide for Free Zone Persons, where one of the examples provided by the FTA clarified that interest earned by a QFZP on term deposits could be treated as Qualifying Income even though no separate Related Party counterparty was involved. By recognizing “own account” in the text of the activity, the decision provides firmer footing for routine cash management outcomes, such as interest on bank deposits or income arising from short-term liquidity placements, when these are part of the QFZP’s treasury function.

 

At the same time, it is not yet clear how far “for its own account” extends beyond that self-investment context. Some practitioners read the phrasing as a broader opening for activities such as providing credit to third parties, purchasing third-party debt instruments, or investing in securities generally. In our view, that interpretation is difficult to square with the continued reference to “Related Parties” in the activity title and with the overall structure of the Free Zone rules. If a wholesale expansion to third-party intermediation were intended, one would expect the text to entirely remove any Related Party language and to set out clearer perimeter conditions. Until the FTA updates its guidance, in our view a conservative approach remains prudent.

 

Distribution in or from a Designated Zone

 

MD No. (229) of 2025 makes helpful adjustment to the qualifying activity for Designated Zone distribution. Under the previous rules, qualifying income hinged on the QFZP making supplies to a reseller. Sales to an end user disqualified the income even where all other Designated Zone conditions were met. The new text introduces an alternative by recognizing supplies to a public benefit entity as qualifying.

 

Interestingly, the decision uses the broader term “public benefit entity” and does not require the counterparty to be a “Qualifying Public Benefit Entity” listed for Corporate Tax purposes under Article 9 and its Cabinet Decision.

 

The public benefit entity is not required to act as a reseller, so supplies may be for the entity’s own use and still fall within the scope of a qualifying distribution activity, provided all other criteria are satisfied.

In practical terms, distributors operating in or from a Designated Zone now have an additional route to treat revenue as qualifying where their counterparties are charities or foundations, such as UNHCR or the Emirates Red Crescent. This further refinement by the MOF reduces friction for humanitarian and non-profit procurement that typically does not involve onward resale and aligns the regime with a policy intent to facilitate the charitable sector.

 

Temporal effect and transition

Both MD No. (229) and MD No. (230) apply retroactively from 1 June 2023. That means the “quoted price” test and the revised activity definitions govern historic periods from the start of the regime. With the first CIT return deadline of 30 September 2025 now passed for many taxpayers, any repositioning will need to be made via voluntary disclosure where filings are already submitted. Those yet to file should reassess before filing returns.

 

Key takeaways

 

The Ministry of Finance continues to finetune the Free Zone Tax Regime in response to industry feedback.

The “third-generation” rules in MD No. (229) of 2025 bring clarity to commodity trading by replacing the “raw form” concept with a market-referenced quoted-price test and by expressly covering associated hedging and structured commodity finance, while guarding against re-characterizing logistics-heavy models as trading.

Treasury and financing activities undertaken by a taxpayer for its own account now expressly fall within scope of this qualifying activity, but a conservative approach is advisable until the FTA clarifies the breadth of the revised activity.

Small changes to distribution activities further fine-tune this qualifying activity to accommodate supplies to public benefit entities.

With retroactive effect to 1 June 2023, businesses should revisit positions taken to date and adjust, where necessary, in advance of filing or by submitting a voluntary disclosure.

 

Reference

• Ministerial Decision No. (229) of 2025 on Qualifying Activities and Excluded Activities
• Ministerial Decision No. (230) of 2025 on Determination of Recognized Price Reporting Agencies

 

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¹ Ministerial Decision No. (84) of 2025 on Audited Financial Statements for the Purposes of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses