UAE Free Zone companies that meet the conditions to be a "Qualifying Free Zone Person" can continue to benefit from a 0% corporate tax rate, but only on their "Qualifying Income," not on all income automatically. Qualifying Income generally includes income from transactions with other Free Zone persons (subject to conditions), income from qualifying activities specified by Ministerial Decision No. 229 of 2025 (which replaced the original Ministerial Decision No. 265 of 2023 and widened the list, for example expanding qualifying commodities trading to industrial chemicals, by-products, and environmental commodities like carbon credits, dropping the requirement that commodities trade on a recognized exchange, and permitting treasury/financing activities for the Free Zone Person's own account), and income from owning intellectual property meeting specific conditions. Income that falls outside these categories, notably income from most transactions with UAE mainland customers that don't qualify under the specific rules, or from "excluded activities" explicitly listed in the law, is taxed at the standard UAE corporate tax rate instead. Earning non-qualifying income above the "de minimis" limit, the lower of AED 5,000,000 or 5% of total revenue, causes a Free Zone company to lose its 0% rate on ALL its income for that tax period, not just the non-qualifying portion. This makes correctly classifying and tracking income sources critical for any Free Zone company wanting to preserve its preferential rate, rather than something to assess only at year-end.
Example: A Free Zone trading company earns most of its income from other Free Zone businesses (qualifying) but also sells directly to a UAE mainland retail customer in a way that doesn't meet the qualifying conditions. That mainland income may be taxed at the standard rate, and if it exceeds the "de minimis" threshold, could jeopardize the 0% rate on the company's qualifying income too.
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