Revised Free Zone Decisions

Latest Update on UAE Corporate Tax for Free Zone

11/27/20233 min read

The previously issued Cabinet Decision No 55 of 2023 and Ministerial Decision No. 139 of 2023 regarding UAE Free Zones (FZ) have been repealed and are now replaced by –

  1. Cabinet Decision No. 100 of 2023 on Determining Qualifying Income (QI) for the Qualifying Free Zone Person (QFZP); and

  1. Ministerial Decision No. (265) of 2023 Regarding Qualifying Activities (QA) and Excluded Activities (EA) for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (hereinafter referred to as the “CT Law”).

Both decisions are retroactively effective from 1st June 2023.

The latest decisions now include crucial additional rules and clarifications tailored for FZ entities.


Ø The definition of ‘Qualifying Income’ has been broadened to encompass 'Income generated through the ownership and utilization of ‘Qualifying Intellectual Property.' This expansion appears to be specifically tailored for companies that earn revenue from intellectual property, excluding trademark royalties, and actively engage in research and development either internally or through third-party collaborations.

However, revenue from ownership and utilization of any IP other than QIP and income in excess of qualifying income will be subject to tax.

Businesses that earn income from owning and exploiting intellectual property assets should carefully assess whether they can benefit from the 0% tax rate under the new Free Zone tax regulations.

Ø The definition of ‘Qualifying Activities’ has been broadened to encompass the 'Trading of Qualifying Commodities,' which refers to both the physical trading of Qualifying Commodities and the associated derivative trading. It is a requirement that these commodities be traded on a commodity exchange. This activity is permissible at any Free Zone approved for Commodity Trading, not limited to Designated Zones.


The Definition states that it includes copyrighted software, patents, and any right functionally equivalent to a patent, but does not include any marketing related Intellectual Property such as Trademarks.


1. Ownership and right to exploit the QIP

2.. Overall Income derived from QIP

3. Qualifying expenditures and overall expenditures incurred

4. The link between qualifying expenditures and overall income derived from QIP

5. Trading of Qualifying Commodities.


· ‘TRADING OF QUALIFYING COMMODITIES’ is now included as a Qualifying Activity under this decision.

· Engaging in trading encompasses both the physical exchange of goods and the corresponding derivative trading practices, utilized to mitigate the risks linked to these activities.

· Commodities eligible for qualification include metals, minerals, energy, and agricultural commodities traded in their unprocessed state on a Commodities Exchange Market officially licensed and regulated by a competent authority, whether located within or outside the State.


· CIGA (Core Income Generating Activity) has to be undertaken in a Free zone to be QFZP (Qualifying Free Zone Person).

· CIGA primarily encompasses key functions that contribute to the business value of the conducted activity.

· The QFZP must possess ample assets and employ qualified full-time staff within the free zone or designated area, and also undertake sufficient operating expenditures.

· CIGA may be outsourced to another person in a Free Zone , but should be supervised by the QFZP.

· Concerning Qualifying IP, CIGA allows for outsourcing to any individual within the State or to any unrelated party outside the State, provided that there is sufficient supervision by the QFZP.


· The mention of 'incidental' income as qualifying income has been eliminated.

· The term 'ancillary' activity now pertains to a Qualifying or Excluded Activity, defined as an activity that lacks independent function but is essential for the execution of the primary activity.

· The Qualifying Activity pertaining to the 'Holding of shares and other securities' has been revised to 'Holding of shares and other securities for investment objectives.' The Decision specifies that investment objectives entail holding for a continuous duration of no less than 12 months.

· To meet the substance requirements of the Free Zone (FZ), core income-generating activities within the FZ are primarily defined as significant functions that contribute substantially to the business value of each activity conducted by a Qualified Free Zone Person (QFZP), excluding activities that are predominantly supportive in nature.

· The concept of 'Headquarter Services to Related Parties' encompasses the administration, supervision, and management of the business activities of Related Parties. This includes offering senior and general management, captive insurance services, administrative services, procurement services, business planning and development, risk management, coordination of group activities, and overall handling of expenditures on behalf of Related Parties, along with the provision of additional support services to them.

The concept of 'Ownership, management, and operation of Ships' is broadened to encompass towing operations, offering general assistance to Ships at sea, and engaging in dredging activities in maritime environments.

Revised Free Zone Decisions
Revised Free Zone Decisions

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