If you’re running a business in the UAE, understanding qualifying activities under corporate tax law could save you thousands of dirhams every year. The UAE introduced a corporate tax system in 2023, but not all businesses pay the same rate. Some activities qualify for a 0% tax rate, while others face the standard 9% rate.
The difference between paying zero tax and paying 9% on your profits comes down to understanding which activities qualify and how to structure your business properly.
Read on to discover how qualifying activities work, which business operations are eligible, and the practical steps you can take to potentially reduce your corporate tax burden to zero.
What Are Qualifying Activities Under UAE Corporate Tax Law?
Qualifying activities are specific business operations that the UAE government identified as eligible for preferential tax treatment. The Federal Tax Authority (FTA) created these categories to encourage certain economic activities while maintaining the country’s competitive edge as a global business hub.
Businesses conducting qualifying activities through a Qualifying Free Zone Person (QFZP) structure can benefit from a 0% corporate tax rate on qualifying income. This is a significant advantage compared to the standard 9% rate that applies to most mainland businesses and non-qualifying activities.
The 13 Types of Qualifying Activities Recognized in the UAE
The UAE recognizes thirteen distinct categories of qualifying activities under Ministerial Decision 229 of 2025. Each category has specific requirements and definitions set by the FTA.
The officially recognized qualifying activities include:
✅ Manufacturing of goods and materials, including production, improvement, or assembly from raw materials
✅ Processing of goods or materials through treatment, transformation, or conversion
✅ Trading of qualifying commodities, including metals, minerals, industrial chemicals, energy, agricultural commodities, and environmental commodities
✅ Holding of shares and securities for investment purposes (held for at least 12 months)
✅ Ownership, management, and operation of ships used in international transportation
✅ Reinsurance services rare egulated under UAE law
✅Fund management services subject to regulatory oversight
✅ Wealth and investment management services provide advisory services
✅ Headquarter services to related parties, including administration and oversight
✅ Treasury and financing services to related parties or forthe company’s own account
✅ Financing and leasing of aircraft, including engines and components
✅ Distribution of goods or materials in or from a Designated Zone
✅ Logistics service,s including storage and transportation on behalf of others
✅ Ancillary activities to any of the above-qualifying activities
Understanding Excluded Activities That Don’t Qualify for 0% Tax
Not every business activity qualifies for the preferential tax rate. The UAE has specifically identified certain excluded activities that face the standard 9% corporate tax rate, even when conducted by free zone entities.
Excluded activities include:
✅ Transactions with natural persons (individuals), except for specific qualifying activities like ship operations, fund management, wealth management, and aircraft financing
✅ Banking activities subject to regulatory oversight
✅ Insurance activities (except reinsurance services, which qualify)
✅ Finance and leasing activities (except specific qualifying activities)
✅ Ownership or exploitation of immovable property, except commercial property in a Free Zone, is transacted with other Free Zone Persons
✅ Ancillary activities to any excluded activities
If your business engages in these activities, that portion of your income will be taxed at 9%, regardless of your free zone status. Proper income allocation between qualifying and excluded activities becomes essential for compliance.
Trading of Qualifying Commodities: What You Need to Know
Trading of qualifying commodities is one of the thirteen recognized qualifying activities with specific requirements under Ministerial Decision 229 of 2025. To qualify, you must trade commodities that have a quoted price from a recognized commodity exchange market or price reporting agency.
Qualifying commodities include:
✅ Metals, minerals, and industrial chemicals with quoted prices
✅ Energy commodities, including crude oil, natural gas, and related products
✅ Agricultural commodities with quoted prices
✅ Associated by-products made during production or extraction
✅ Environmental commodities such as carbon credits or renewable energy certificates
Important limitation: This activity does not qualify if your revenue from distribution, warehousing, logistics, or inventory management constitutes 51% or more of total revenue.
What Is a Qualifying Free Zone Person (QFZP)?
A Qualifying Free Zone Person is a business entity established in a designated UAE free zone that meets multiple conditions under Article 18 of the Corporate Tax Law and Ministerial Decision 229 of 2025. This status is your gateway to accessing the 0% corporate tax rate on qualifying income.
The core conditions are:
✅ Be a Free Zone Person incorporated, established, or registered in a Free Zone
✅ Maintain adequate substance in the UAE with real offices, employees, and core income-generating activities
✅ Derive qualifying income from qualifying activities
✅ Not have elected to be subject to the standard 9% rate
✅Non-qualifying revenue must not exceed 5% of total revenue OR AED 5 million (whichever is lower)
✅ Prepare audited financial statements according to Ministerial Decision 84 of 2025
Each condition must be continuously maintained throughout the tax period. Professional service providers, including accounting firms like OPAB, help businesses assess whether they meet these substance requirements properly.
📚 Also read: UAE Tax Registration Number: Complete TRN Guide
How Qualifying Free Zone Persons Get 0% Corporate Tax
QFZPs benefit from a unique dual tax rate system where qualifying income is taxed at 0% while non-qualifying income faces the standard 9% rate. The key is understanding what counts as qualifying income and properly tracking income sources.
Qualifying income includes:
✅ Income from transactions with other free zone persons (except for excluded activities)
✅ Income from foreign entities outside the UAE
✅ Income from qualifying activities with mainland UAE entities
Important note: QFZPs do not benefit from the AED 375,000 threshold on their non-qualifying income. This threshold only applies to mainland businesses and non-QFZP Free Zone businesses.
Qualifying Income vs. Non-Qualifying Income: Making the Distinction
The distinction between qualifying and non-qualifying income determines your actual tax liability. Understanding which category each transaction falls into is critical for accurate tax reporting.
Qualifying income includes:
✅ Revenue from qualifying activities with other QFZPs
✅ Income from goods or services to foreign clients
✅ Income from qualifying activities with mainland UAE entities
✅ Income from qualifying intellectual property (subject to nexus requirements)
Non-qualifying income includes:
✅ Revenue from excluded activities
✅ Income from transactions not meeting the qualifying criteria
✅ Transactions with natural persons (except specific allowed activities)
The de minimis rule allows up to 5% of total revenue OR AED 5 million (whichever is lower) from non-qualifying income without losing QFZP status.
Recent Changes: Ministerial Decision 229 of 2025 Explained
Ministerial Decision 229 of 2025, published August 28, 2025, brought important updates to the qualifying activities framework. This decision replaced Ministerial Decision 265 of 2023 and is effective retroactively from June 1, 2023.
Key updates include:
- Expanded qualifying commodities to include industrial chemicals, by-products, and environmental commodities
- Removed “raw form” requirement for commodity trading
- Enhanced distribution criteria requiring goods imported through Designated Zones
- Updated treasury services to include services for own account
- Refined IP rules with nexus requirements
- Mandatory audited financial statements for all QFZPs
📚 Also read: How to Avoid Penalties for FTA Corporate Tax Filing?
Ministerial Decision 139 of 2023: The Foundation Rules
Ministerial Decision 139 of 2023 established the original qualifying activities framework when UAE corporate tax was first implemented on June 1, 2023. This foundational decision set the baseline requirements for QFZPs and defined the initial qualifying activity categories.
Decision 139 was later replaced by Decision 265 of 2023, which was then replaced by Decision 229 of 2025. All decisions have been effective retroactively from June 1, 2023, so businesses should review positions based on current guidance.
Corporate Tax Rates and Exemptions in the UAE
The UAE corporate tax system operates on multiple tiers designed to support different business types. Understanding which tier applies to your business is essential for tax planning.
The tax rate structure includes:
- 0% on taxable income up to AED 375,000 (mainland and non-QFZP businesses)
- 9% on taxable income above AED 375,000 (standard rate)
- 0% for qualifying income of QFZPs (no limit)
- 9% for non-qualifying income of QFZPs (no AED 375,000 threshold)
Complete exemptions exist for:
- Government entities and government-controlled entities
- Qualifying public benefit entities
- Extractive businesses (subject to Emirate-level taxation)
Small Business Relief is available until December 31, 2026, for businesses with annual revenue of AED 3 million or less.
How to Reduce Your Corporate Tax Burden in the UAE
Legitimate tax optimization starts with understanding your business structure and activities. Strategic planning can significantly reduce your tax liability while maintaining compliance.
Effective strategies include:
- Restructuring operations to focus on qualifying activities
- Establishing free zone presence for eligible operations
- Utilizing holding company structures appropriately
- Implementing proper transfer pricing for related party transactions
- Considering Small Business Relief for eligible businesses
📚 Also read: Corporate Tax Training UAE: Registration, Filing, and Compliance
Allowable Expenses for UAE Corporate Tax Deductions
Reducing taxable income through allowable deductions is as important as optimizing your tax rate. The FTA permits deductions for expenses wholly and exclusively incurred for business purposes.
Allowable deductions include:
✅ Operating expenses necessary for generating income
✅ Employee salaries, wages, and benefits
✅ Depreciation on business assets
✅ Interest expenses (subject to limitations)
✅ Professional fees for accounting, legal, and consulting services
Non-deductible expenses include:
✅ Entertainment expenses beyond specified limits
✅ Penalties and fines to government authorities
✅ Personal expenses of owners or shareholders
✅ Related party expenses not meeting arm’s length standards
Professional accounting support from firms like OPAB helps maintain proper documentation and ensure all legitimate deductions are claimed.
Compliance Requirements for Businesses with Qualifying Activities
Maintaining QFZP status requires ongoing compliance with multiple requirements. You must meet various obligations continuously to preserve your 0% tax rate eligibility.
Key compliance requirements include:
✅ Maintaining books and records according to FTA standards
✅ Meeting economic substance requirements with actual operations
✅ Preparing transfer pricing documentation for related party transactions
✅ Filing annual corporate tax returns within 9 months of fiscal year-end
✅ Accurately categorizing income between qualifying and non-qualifying
✅ Preparing mandatory audited financial statements
Regular internal reviews help ensure continued compliance through quarterly checks on substance requirements, monthly reviews of income classification, and annual audits of transfer pricing policies.
Practical Steps to Qualify for 0% Corporate Tax
Following a structured approach increases your chances of successful QFZP implementation. Start by assessing your business activities against the thirteen qualifying categories.
Implementation steps:
- Assess activities against qualifying categories under MD 229 of 2025
- Evaluate free zones for industry specialization and requirements
- Plan substance requirements, including staff, facilities, and operations
- Understand de minimis rules and monitor the 5%/AED 5M threshold
- Implement accounting systems to track qualifying vs. non-qualifying income
- Register with FTA and filea QFZP designation
- Establish monitoring through quarterly compliance reviews
📚 Also read: Purpose of Payment Code UAE | Meaning, Use, and Correct Codes
Conclusion
Understanding qualifying activities under the UAE corporate tax law opens significant opportunities for legitimate tax optimization. The 0% rate on qualifying income can substantially reduce your tax burden when properly structured and maintained.
Success requires careful planning, accurate income classification, solid substance in the UAE, and ongoing compliance with all QFZP conditions. The framework has evolved through multiple ministerial decisions, showing the UAE government’s commitment to clarity and refinement.
If you need expert support for corporate tax compliance, accounting software implementation, or tax planning strategies, consider reaching out to Outsource Prime Accountants and Bookkeepers (OPAB).
OPAB works with businesses across Dubai and the UAE to navigate corporate tax requirements, implement accounting systems like Odoo, Zoho Books, and QuickBooks, and maintain ongoing compliance with FTA standards.
Contact OPAB today for tailored guidance that fits your business needs and helps you maximize the benefits of UAE’s corporate tax framework.
FAQs About Qualifying Activities UAE Corporate Tax
What is the corporate tax waiver in the UAE?
The UAE does not have a general corporate tax waiver. Some entities are fully exempt, while others may qualify for 0% tax or temporary relief under specific rules.
What is the corporate tax slab in the UAE?
Most businesses pay 0% tax up to AED 375,000 and 9% above that. Qualifying Free Zone businesses pay 0% on qualifying income and 9% on non-qualifying income.
How many qualifying activities are recognized in the UAE?
The UAE recognizes 13 qualifying activities, plus approved supporting activities.
Who qualifies for Small Business Relief under UAE corporate tax?
Businesses with annual revenue of AED 3 million or less may qualify for Small Business Relief until December 31, 2026.
Does UAE corporate tax apply to Free Zone companies?
Yes. Free Zone companies are subject to corporate tax, but qualifying Free Zone Persons can benefit from a 0% rate on qualifying income.
