Free Zone New Updates

UAE Free Zone Corporate Tax – Key Insights on MD-229 & MD-230 (2025)

The UAE has introduced new updates to Free Zone corporate tax rules through Ministerial Decision No. 229 (MD-229) and Ministerial Decision No. 230 (MD-230) in 2025. These changes are important for every business operating in a Free Zone. They redefine what counts as qualifying income, set stricter rules for commodity pricing, and tighten compliance requirements.

For Free Zone businesses, the message is clear: adapt quickly or risk losing the 0% corporate tax benefit. Non-compliance can mean retroactive tax bills, unexpected penalties, or even disqualification for several years.

1. What These Decisions Cover

Ministerial Decision No. 229 (MD-229) – Qualifying Free Zone Persons(QFZP)

MD-229 revises the rules for entities that qualify for 0% corporate tax in the UAE Free Zones.

Key updates include:

  • Expanded Qualifying Activities
    Commodity Trading: Now covers industrial chemicals, by-products, and carbon credits.
    Treasury & Financing: Intra-group financing, treasury operations, and holding company functions are recognised.
    Holding companies are eligible, provided they meet the required documentation and activity standards.
  • Replaces MD-265 (2023)
    As a result, the new rules provide broader eligibility while also introducing stronger safeguards to prevent misuse.
  • Compliance & Documentation
    Accurate records are mandatory. Missing or weak evidence may result in losing the 0% benefit.

Ministerial Decision No. 230 (MD-230) – Commodity Pricing Rules

MD-230 focuses on transparency and fair pricing for commodities traded in Free Zones.

Key updates include:

  • Recognised Price Sources
    Lists acceptable agencies and exchanges to verify market pricing.
  • Transfer Pricing Alignment
    Matches the UAE Free Zone rules with OECD/BEPS standards to stop artificial price adjustments.
  • Compliance Requirements
    Businesses must link every commodity to an approved price source.
    Transaction-level documentation is compulsory.

Non-compliance means income can be treated as non-qualifying and taxed at 9%.

2. Why Compliance is Critical

Ignoring these new rules is costly. Here’s what Free Zone businesses risk:

  • Loss of 0% Exemption – Profits taxed at 9% immediately.
  • Retroactive Bills – Past income may be taxed, plus interest.
  • Multi-Year Disqualification – One mistake can mean losing benefits for up to 4 years.
  • Audits & Penalties – Weak records attract fines and legal costs.
  • Pricing Scrutiny – Trades without approved sources risk reclassification.
  • Loss of Investor Trust – Tax disputes damage reputation and financing opportunities.

3. Practical Steps for Free Zone Businesses

To stay compliant and protect the 0% tax rate, businesses should:

  • Map Activities – Compare operations with the new qualifying list.
  • Check Commodity Pricing – Match every trade with approved price sources.
  • Review Treasury & Holdings – Ensure intra-group financing and holding activities qualify.
  • Strengthen Records – Keep clear evidence for transfer pricing and filings.
  • Identify Non-Qualifying Income – Track mainland and unrelated-party income.
  • Prepare for Digital Reporting – Upgrade accounting systems for compliance-ready reports.

4. Why This Matters for Your Business

Free Zones remain attractive because they offer major advantages, especially the 0% corporate tax rate. However, these benefits are not automatic, and businesses must comply with MD-229 and MD-230 to keep them.

If companies fail to comply, the risks are serious. For example, they could face retroactive tax bills, unexpected audits, or even multi-year disqualification from Free Zone benefits, the profits may fall, and investor trust can weaken.

Timely compliance secures the 0% exemption. And it improves tax efficiency, strengthens credibility, and supports long-term stability by reducing regulatory risks.

How KLOUDAC Can Help

KLOUDAC supports Free Zone businesses in:

  • Reviewing qualifying activities and income
  • Ensuring commodity pricing compliance
  • Preparing transfer pricing documents and filings

📞 Contact KLOUDAC at +971 50 43 53 515 to secure your Free Zone tax benefits.