Important changes regarding the application of corporate tax relief in the UAE by free zone persons

Annulment of Decision No. 265 of 2023 and entry into force of Decision No. 229 of 2025

The UAE Ministry of Finance has published Decision No. 229, which rescinds the previously effective Decision No. 265 of 2023 concerning qualifying and excluded activities for the purposes of UAE corporate tax. In addition to Decision No. 229, the Ministry also published Decision No. 230. The new decisions apply retrospectively from 1 June 2023.

These regulatory acts make significant changes to the taxation regime for residents of free zones in relation to the following activities:

• Trading of commodities
• Treasury and financing services
• Distribution of goods or materials from designated zones
• Qualifying intellectual property

The list of qualifying commodities has been extended to include industrial chemicals as well as renewable energy certificates (carbon credits). The requirement for traded commodities to be in raw, unprocessed form has been removed.

The new regulations extend the range of acceptable sources of commodity trading data for the purpose of claiming relief. Specifically, information published by recognized price reporting agencies specified in Decision No. 230 may now be used as well as data sourced from exchange markets themselves.

Decision No. 229 also allows the reduced tax rate to be applied to commodities that fall within the same classification group as a commodity admitted for trading.

The Decision imposes a 51% ceiling on revenue from trading-related activities.

Under the previous Decision, only treasury and financing services provided to related parties were recognized as a qualifying activity. The new Decision extends this type of activity to include treasury and financial services for a company’s own benefit. A similar provision was contained in the Tax Service’s Corporate Tax Guide for Free Zone Persons, but the wording in the Guide as to which operations qualified for relief was significantly more restrictive.

As a rule, this activity involves the sale of goods or materials to a person that is not the end user. An exception has now been made for cases where the buyer of the goods or materials is a public benefit entity.

A technical adjustment is made to the wording of the relief to clarify that the numerator in the formula for the calculation of revenue taxable at the 0% rate is increased by 30% of qualifying expenditure on the development of relevant software (and not 130% as might have been inferred from the previous version).