Ministerial Decision No. 229 of 2025 replaces Ministerial Decision No. 265 of 2023 and rewrites the list of qualifying and excluded activities that decide whether a free zone business keeps its 0% corporate tax rate. It applies retrospectively from 1 June 2023. A companion, Ministerial Decision No. 230 of 2025, names the price reporting agencies that free zone traders must benchmark against for related-party commodity deals.
Key takeaways
- MD 229 of 2025 is retrospective to 1 June 2023, so free zone businesses must test already-filed periods against the revised rules, not only future ones.
- The definition of Qualifying Commodities drops the old "raw form" restriction and now covers metals, minerals, industrial chemicals, energy, agricultural commodities, associated by-products and environmental commodities such as carbon credits, provided a quoted price exists.
- Trading of Qualifying Commodities now expressly includes hedging derivatives and structured commodity finance, but the benefit is lost if distribution, warehousing, logistics or inventory management make up 51% or more of revenue.
- Treasury and financing services now qualify whether provided to related parties or run on the entity's own account, so interest on surplus funds can be qualifying income.
- Distribution in a Designated Zone qualifies even when goods go to resellers, processors or approved Public Benefit Entities (PBEs).
- MD 230 of 2025 lists the recognised price reporting agencies — including S&P Global Commodity Insights (Platts), Argus, ICIS and CRU — to be used for benchmarking.
Why does a "retrospective" decision matter so much?
A retrospective decision matters because MD 229 takes effect from 1 June 2023 — the start of the corporate tax regime — so it does not merely set the rules going forward; it changes how the very first tax periods should have been treated. A Qualifying Free Zone Person (QFZP), the free zone entity that meets the substance and income tests to pay 0% corporate tax on qualifying income rather than the standard 9%, may therefore need to revisit positions already filed.
The look-back cuts both ways. Some businesses that assumed income was non-qualifying may now find it qualifies, while others may discover a position they took no longer holds. Either way the point is the same: prior free zone filings should be re-examined against the new definitions, and revised returns considered where the outcome has moved. Reviewing your free zone tax position is now a look-back exercise, not just a forward-planning one.
What changed for free zone commodity traders?
The most consequential change is the broader definition of a Qualifying Commodity. Under the old decision, only metals, minerals, energy and agricultural commodities traded in raw form on a recognised exchange qualified. MD 229 removes "raw form" and widens the net.
| Feature | Under MD 265 of 2023 | Under MD 229 of 2025 |
|---|---|---|
| Commodities covered | Metals, minerals, energy, agricultural — in raw form only | Adds industrial chemicals, associated by-products and environmental commodities (carbon credits, renewable energy certificates) |
| Pricing reference | Recognised commodities exchange | Exchange or a recognised price reporting agency, provided a quoted price exists |
| Trading scope | Physical trades and hedging derivatives | Also structured commodity finance — prepayment, factoring, forfaiting, warehouse receipt and project finance |
| Distribution guardrail | No explicit cap | 0% lost if distribution, warehousing, logistics or inventory management is 51% or more of revenue |
The practical test is the quoted price. A commodity with a quoted price on a recognised exchange or price reporting agency can qualify for 0%; trading in commodities without a quoted price is taxed at 9%, subject to the 5% de minimis allowance.
The 51% rule: trader or distributor?
The revised framework draws a sharp line between a genuine trader and a distributor. If distribution-type functions — warehousing, logistics, inventory management — generate 51% or more of an entity's revenue, it is treated as a distributor and taxed at 9%, not as a qualifying trader.
Qualifying for 0% is no longer about the commodity alone. A free zone entity must show that the trading strategy, price-risk management and hedging decisions genuinely sit with its own people, or the FTA can recharacterise it as a routine distributor.
Functional substance becomes the deciding factor. Traders earn volatile returns from taking price risk; distributors earn routine margins tested on a cost-plus or resale-minus basis. Keeping the strategic decision-making inside the free zone entity, and documenting it, is what preserves the rate. In practice, SBC advisers track distribution-type income month by month, so a group sees the 51% test coming rather than discovering a breach once the accounts close.
Treasury, trade finance and sales to charities
MD 229 adds three further expansions. Treasury and financing services now qualify whether they are provided to related parties or undertaken on the entity's own account, so interest earned on genuinely surplus cash can be qualifying income; banking-style conduct such as public deposit-taking still stays outside the regime. Structured trade finance that is ancillary to an actual commodity trade — a prepayment that secures future deliveries, say — can now share the 0% rate, whereas standalone financing remains taxable at 9%. Distribution in a Designated Zone now qualifies when the customer is a reseller, a processor or an approved Public Benefit Entity, so supplying an approved charity no longer risks the regime.
Arm's length pricing and documentation are non-negotiable across all three. Related-party commodity trades should start from the relevant price reporting agency quote and justify any deviation by reference to quality, quantity, jurisdiction and freight.
What else changed: headquarters, funds and the excluded list
MD 229 also clarifies several service activities beyond commodities and treasury. Headquarter services now expressly cover broader group support functions, and fund and wealth management services qualify where they operate under regulatory oversight — useful certainty for groups that centralise those functions in a free zone.
The excluded list, by contrast, holds its shape. Banking, insurance, and finance and leasing activities stay outside the regime unless a specific carve-out permits them; transactions with natural persons remain excluded subject to limited exceptions; and real estate qualifies only where it is commercial property located in a free zone and transacted with other free zone persons. If any of these streams sit inside a QFZP, they still need to be isolated and taxed at 9% — the new decision does not soften that boundary.
Frequently asked questions
What is a Qualifying Free Zone Person under UAE corporate tax?
A Qualifying Free Zone Person is a free zone entity that meets the substance, qualifying-income and other conditions in the Corporate Tax Law and, as a result, pays 0% corporate tax on its qualifying income and 9% only on non-qualifying income. MD 229 of 2025 redefines which activities count as qualifying.
From when does Ministerial Decision 229 of 2025 apply?
Ministerial Decision No. 229 of 2025 applies retrospectively from 1 June 2023, the start of the UAE corporate tax regime. That means free zone businesses should reassess tax periods already filed, and decide whether revised returns are needed where the new definitions change a qualifying or non-qualifying conclusion.
What is the 51% revenue rule for free zone commodity traders?
The 51% rule treats a free zone entity as a distributor taxed at 9%, not a qualifying commodity trader at 0%, when distribution, warehousing, logistics or inventory management generate 51% or more of its revenue. Keeping distribution-type revenue below the threshold, backed by real trading substance, protects the rate.
Which free zone activities remain excluded under MD 229 of 2025?
Banking, insurance, and finance and leasing remain excluded unless a specific carve-out permits them, as do most transactions with natural persons. Real estate stays excluded except commercial property located in a free zone and transacted with free zone persons. Income from excluded activities is taxed at 9% even inside a QFZP.
What is Ministerial Decision 230 of 2025?
Ministerial Decision No. 230 of 2025 lists the recognised price reporting agencies that free zone businesses use to benchmark related-party commodity transactions — including S&P Global Commodity Insights (Platts and Fertecon), Argus Media, ICIS, OPIS, CRU Group and others. It gives traders an accepted quoted-price reference for their transfer pricing.
How SBC Tax Consulting can help
SBC helps free zone groups re-test qualifying income under MD 229 of 2025, classify commodity, treasury and trade-finance streams correctly, and monitor the 51% distribution threshold. We benchmark related-party commodity trades against the MD 230 price reporting agencies, document functional substance, and assess whether revised returns are needed for periods already filed. See our corporate tax and transfer pricing services, browse our tax FAQs, or contact us to protect your 0% status.
This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.