The 0% corporate tax rate for free zone companies is real, and it is narrower than almost every article about it suggests. It applies to qualifying income earned by a Qualifying Free Zone Person, and both of those are defined terms with conditions attached.
The rules also changed. Ministerial Decision No. 229 of 2025 repealed and replaced Ministerial Decision No. 265 of 2023 on qualifying and excluded activities. If the guidance you are reading cites 265, it is describing a decision that no longer exists.
What the 0% actually attaches to
Not to the company. To the income. A Qualifying Free Zone Person pays 0% on qualifying income and 9% on everything else, in the same period, on the same return. There is no version of this where being in a free zone makes the company tax-free.
Income that is not qualifying does not just get taxed. Earn more than a small amount of it and you lose Qualifying Free Zone Person status altogether, which moves the whole company to 9% for that period and the four that follow.
The conditions, in the order they get failed
- Adequate substance in the free zone. Real activity, real people, real premises, proportionate to what the company does. A licence and a mailbox is the classic failure.
- Qualifying income only, or de minimis non-qualifying income. The threshold is small and it is a cliff, not a slope.
- Arm's length pricing and transfer pricing documentation. This surprises owner-managed companies that have never thought about transfer pricing.
- Audited financial statements. Not optional for a Qualifying Free Zone Person.
- No election to be taxed at the standard rate. The status can be given up, and sometimes should be.
What changed in MD 229 of 2025
The replacement decision widened qualifying commodity trading and clarified financing. In outline, from the Ministry of Finance:
- The term "in raw form" was removed from qualifying commodity trading, so the test is no longer about the state the commodity is in.
- Metals, minerals, energy and agricultural commodities are covered, and industrial chemicals were added.
- Associated by-products of qualifying commodities were brought in, as were environmental commodities.
- Trading qualifies where a quoted price exists for the commodity, with recognised price reporting agencies specified separately in Ministerial Decision No. 230 of 2025.
- Treasury and financing services for related parties were clarified.
If you trade physical commodities out of a free zone, this is the most consequential change to the regime since it started, and it is the part competitor content has been slowest to update.
Who this is genuinely good for
Companies with substance in the zone, income from outside the UAE mainland, and the audit and transfer pricing discipline to prove it. Commodity traders, certain holding structures, and businesses selling internationally from a real office with real staff.
It is a poor fit for a consultancy invoicing mainland clients from a flexi-desk. That income is unlikely to qualify, the substance test is unlikely to be met, and the cost of getting it wrong is five years at 9% plus the audit you were avoiding. The disadvantages of a free zone company covers the wider version of that trade-off, and mainland business setup is often the honest answer.
What it does not change
- You still register for corporate tax.
- You still file a return, nine months after the period ends.
- You cannot also elect Small Business Relief; Qualifying Free Zone Persons are excluded from it.
- VAT is a separate regime and is unaffected.
The filing mechanics are the same as for everyone else, and we set them out in the corporate tax filing deadline.
Free zone corporate tax questions
No. It can access a 0% rate on qualifying income if it meets the conditions for a Qualifying Free Zone Person. Non-qualifying income is taxed at 9%, and enough of it costs the status entirely.
Ministerial Decision No. 229 of 2025. It repealed and replaced Ministerial Decision No. 265 of 2023. Ministerial Decision No. 230 of 2025 specifies the recognised price reporting agencies used for the commodity test.
You lose Qualifying Free Zone Person status for that tax period and the four that follow. It is a five-year consequence, which is why the tests are worth checking before the year end rather than at filing.
Yes, if you want the status. Audited financial statements are a condition of being a Qualifying Free Zone Person, not a general requirement of every free zone company.
No. Qualifying Free Zone Persons are excluded from Small Business Relief. If your revenue is under AED 3 million the two are alternatives, and which is better depends on where your income comes from. We cover that in Small Business Relief extended to 2029.
It generally produces non-qualifying income rather than breaking anything by itself. The question is how much: stay inside the de minimis threshold and you keep the status and pay 9% on that slice; cross it and you lose the status.
Accurate as of 29 August 2026, verified against the Ministry of Finance and the Federal Tax Authority. This is a summary of a regime with real complexity in it: read the decisions, and take advice on your own facts before relying on the rate.
