Understanding Qualifying & Excluded Activities Under UAE Corporate Tax is essential for Free Zone companies, tax professionals, and investors operating in the UAE. Ministerial Decision No. 229 of 2025 (“MD 229”) represents a major clarification by the UAE Ministry of Finance, reshaping how businesses determine eligibility for 0% corporate tax under the Qualifying Free Zone Person (QFZP) regime. This decision replaces the previous Ministerial Decision No. 265 of 2023 and applies retrospectively from 1 June 2023.
What is Ministerial Decision No. 229 of 2025?
Ministerial Decision No. 229 of 2025 provides a detailed and updated framework defining Qualifying Activities and Excluded Activities for the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022). The purpose of this decision is to clarify which business operations conducted within free zones can benefit from the 0% corporate tax rate and which activities will be ineligible, potentially leading to the standard 9% tax rate.
MD 229 also expands the scope of the corporate tax regime to reflect the evolving UAE economy, enhance legal certainty, and ensure Free Zone entities align with international tax standards.
Understanding qualifying activities under UAE Corporate Tax
Understanding qualifying and excluded activities under UAE Corporate Tax is essential for stakeholders. A qualifying activity is a business activity that a QFZP can undertake and still benefit from the zero per cent corporate tax rate, provided all compliance conditions are met. MD 229 lists several activities that qualify, including:
Manufacturing of goods or materials
Manufacturing or assembling goods from raw materials to final products falls under this scope. It explicitly includes the production, improvement, or assembly of products and materials from raw materials or components.This supports 0% corporate tax for compliant free zone entities, provided de minimis rules are met. Manufacturing activities include production planning, production process (converting raw materials into finished goods), and quality control. Supporting activities like installation, warranties, maintenance, upgrades, and customer support may qualify only if they are directly connected to manufactured goods. Repairs are not considered manufacturing, as they are service-based and do not create or significantly change a product.
Processing of goods or materials
Processing of Goods or Materials qualifies as a core activity for QFZPs, defined as the preparation, treatment, transformation, or conversion of goods/materials into another form for commercial or industrial use/sale. Processing qualifying activities include production planning, the actual processing work (such as assembly, fabrication, machining, chemical treatment, printing, or packaging), and quality control at various stages. Supporting activities like post-sale services and customer support may also qualify if they are directly related to the processed goods. These ancillary activities cannot stand alone. They only qualify when closely linked to the core processing activities.
This supports the 0% CT rate if de minimis revenue rules (non-qualifying revenue ≤5% total or AED 5M) are met and audited statements are prepared.
It repeals prior Decision 265/2023, expanding commodities like chemicals and by-products while excluding activities like banking or retail.
Trading of qualifying commodities
The scope of activities has been broadened to cover structured financing arrangements, including prepayments, factoring, forfaiting, countertrade, warehouse receipt financing, export receivable financing, project finance, Islamic trade finance, and streaming transactions.
However, the updated Ministerial Decision also clarifies that where a Qualifying Free Zone Person (QFZP) derives 51% or more of its revenue from distribution, warehousing, logistics, or inventory management activities, any trading of commodities, along with related derivatives or financing transactions, will not be treated as trading in qualifying commodities.
Holding of shares and securities
This qualifies if held for at least 12 uninterrupted months as a legal or beneficial owner, covering shares in juridical persons’ capital, equitable profit interests, negotiable/non-negotiable instruments (derivatives, commodities, convertibles), excluding securitised receivables from non-financial assets.
Ownership, management & operation of ships
It basically refers to owning, managing, or operating ships that are used for international transport of passengers, cargo, or livestock. It also includes towing services, helping other ships at sea, offshore dredging work, and leasing or chartering ships on a bareboat basis for international operations.
However, it does not cover ships used for local travel, leisure or recreational activities, or vessels that operate as floating hotels, restaurants, or casinos.
Reinsurance services
Reinsurance is insurance for insurers, where a reinsurer agrees under a contract to take on all or part of the risk already accepted by another insurer. Reinsurance services basically mean reinsurance activities that are regulated under Federal Decree-Law No. 48 of 2023, as well as any future law that may amend or replace it.
Fund management services
It refers to portfolio management, risk management, and discretionary fund management carried out under the supervision of UAE regulators. To stay compliant, businesses need to clearly understand which activities qualify and which are excluded under UAE Corporate Tax.
Wealth & investment management services
It simply means advisory and portfolio management services that are officially licensed and regulated by authorities such as the Dubai Financial Services Authority (DFSA) or the Abu Dhabi Global Market (ADGM).
Headquarters, treasury & financing services to related parties
Corporate headquarters functions for related entities and treasury services are treated as qualifying, whether for related parties or for a group’s own account.
Aircraft financing & leasing
Financing and leasing operations related to aircraft and engines qualify.
Distribution services
Encompasses the import of goods into Designated Free Zones, their storage and warehousing, systematic inventory management, and the subsequent export of those goods to international or local markets.
Logistics services
Includes end-to-end logistics support such as freight forwarding, warehousing solutions, customs clearance and brokerage, professional packing and unpacking, along with other allied logistics services.
Ancillary qualifying activities
An activity is ancillary if it is necessary for the main activity or makes only a minor, closely related contribution and should not be treated as a separate activity.
Together, these qualifying operations define the framework within which Free Zone businesses can strategically plan their activities to enjoy 0% corporate tax.
What are excluded activities under UAE Corporate Tax?
While many activities qualify, MD 229 clearly outlines certain excluded activities that could disqualify a Free Zone company from QFZP status, subject to a de minimis limit. The main excluded categories include:
Transactions with natural persons
Activities involving direct transactions with individuals (not corporate entities) are generally excluded, with limited exceptions as ship ownership, Fund management services, wealth and investment management services and aircraft financing.
Banking activities
Regulated banking functions like lending, deposit taking, and card services are excluded.
Insurance activities
General and life insurance are excluded, but reinsurance & captive insurance forming part of headquarters services to Related Parties remains eligible.
Finance & leasing activities
Ownership or exploitation of immovable property
It refers to owning or using immovable property, except for commercial property in a Free Zone, when the related transaction is carried out with another Free Zone person.
Ancillary excluded operations
Activities directly linked to an excluded service are also treated as excluded.
Understanding these exclusions is key for companies to avoid losing their QFZP entitlements and incurring the standard corporate tax rate.
The De Minimis Rule: A key compliance threshold
MD 229 introduces a de minimis threshold to determine how much non-qualifying income a company can earn while maintaining QFZP status. A company will retain its 0% tax benefit if its non-qualifying income does not exceed:
- 5% of total revenue, or
- AED 5 million, whichever is lower.
Breaching this threshold forces the company to forfeit its qualifying status for the current and next four tax periods, making strict revenue monitoring critical.
Qualifying Intellectual Property (IP) income
The Decision also explains the conditions under which IP income is eligible for the 0% tax benefit.
MD 229 also clarifies conditions under which IP-related income qualifies for tax benefits. Key elements include
- Qualifying R&D expenditures,
- Ownership and documentation of IP, and
- Arm’s length pricing for IP transactions.
If IP income stems from genuine innovation and development within the UAE, it may be treated as qualifying income.
Maintaining QFZP Compliance: Audit and Conditions
Business Impact of Ministerial Decision No. 229 of 2025
The issuance of MD 229 affects businesses across sectors:
- Manufacturers & Traders must validate income sources against qualifying categories.
- Financial service firms need to distinguish between regulated qualifying activities and excluded services.
- Real estate & leasing companies face stricter criteria.
- Tech & IP-driven companies must align R&D with qualifying IP rules. For all Free Zone businesses, the message is clear: align operations with qualifying criteria to continue enjoying the UAE’s competitive corporate tax incentives.
FAQs:
Which activities are considered Qualifying Activities under UAE Corporate Tax?
Ans. These cover manufacturing, processing, commodity trading, fund management, logistics, treasury services, and other eligible activities.
Are real estate transactions within Free Zones eligible for qualification?
Ans. Generally, no, unless the transaction in respect of commercial property is with another Free Zone Person.
What if a company fails to comply with QFZP conditions?
Ans. It will lose its QFZP status for the relevant tax period, also its income will become subject to UAE Corporate Tax at the standard rate (9%), instead of the 0% Free Zone rate.
Conclusion
Qualifying & Excluded Activities Under UAE Corporate Tax define the foundation of the Free Zone tax regime under Ministerial Decision No. 229 of 2025. This decision not only clarifies eligible activities for 0% tax but also strengthens compliance standards with practical rules like the de minimis threshold. By understanding and applying these definitions correctly, free zone companies can optimise their corporate tax position and remain competitive in the UAE business landscape.
