Excluded Activities for Qualifying Free Zone Persons — Full Guide to MD 229 of 2025
Understanding excluded activities is critical for any Qualifying Free Zone Person (QFZP) in the UAE. Income derived from an excluded activity is taxable at the standard 9% Corporate Tax rate — not at 0%. Ministerial Decision No. 229 of 2025 updates and clarifies these rules, replacing MD 265 of 2023 with enhanced precision.
The Six Excluded Activities
Article 2(2) of MD 229 of 2025 identifies the following as excluded activities:
1. Transactions with Natural Persons
Any transaction conducted with a natural person (individual) is an excluded activity — with four exceptions. Transactions with natural persons ARE qualifying when they relate to: Ship ownership/management/operation (e.g., passenger transport), fund management services, wealth and investment management services, and Aircraft financing and leasing. This exception reflects the reality that fund management, wealth management and passenger shipping inherently involve individual clients.
2. Banking Activities
Banking activities are fully excluded. These are the regulated financial activities specified under Federal Decree-Law No. 14 of 2018 on the Central Bank and Organisation of Financial Institutions and Activities, and any amending legislation. This includes deposit-taking, lending, credit facilities, and regulated payment services.
3. Insurance Activities
Insurance activities regulated under Federal Decree-Law No. 48 of 2023 on the Regulation of Insurance Activities are excluded — but with two important exceptions. Reinsurance services (paragraph (f) of qualifying activities) and captive insurance services provided as part of headquarter services to Related Parties (paragraph (i)) remain qualifying activities.
4. Finance and Leasing Activities
Finance and leasing activities are excluded — these are credit/financing provision and asset-leasing arrangements subject to Competent Authority oversight. Four exceptions apply: Qualifying Commodity trading (which can include structured commodity financing), Ship ownership/management/operation (which includes bareboat chartering), treasury and financing services to Related Parties or own account, and Aircraft financing and leasing. These activities retain qualifying status because they are specifically carved out by name.
5. Ownership or Exploitation of Immovable Property
Owning or exploiting real estate (immovable property) is an excluded activity — with one exception. Commercial property located inside a Free Zone where the transaction is conducted with another Free Zone Person qualifies. This exception enables Free Zone-to-Free Zone commercial real estate transactions without losing the 0% rate, but transactions with natural persons or mainland entities involving real estate remain excluded.
6. Ancillary Activities to Excluded Activities
Any activity that is ancillary to the above excluded activities is also excluded. An activity is ancillary if it is necessary for the performance of the main excluded activity or makes a minor contribution to it and is so closely related that it cannot be regarded as a separate activity.
Consequences of Conducting Excluded Activities
Income derived from excluded activities is taxable at the standard 9% Corporate Tax rate. If a QFZP's non-qualifying revenue (from both excluded activities and non-qualifying transactions) exceeds the de minimis threshold (lower of 5% of total revenue or AED 5,000,000), the QFZP loses its qualifying status for the entire Tax Period and for the four subsequent Tax Periods. This makes rigorous monitoring of excluded activity revenue critically important.
Frequently Asked Questions
Can a Free Zone bank qualify for 0% Corporate Tax?
No. Banking activities are a fully excluded activity under MD 229 of 2025 with no exceptions. Banks and regulated deposit-taking institutions cannot qualify for 0% Corporate Tax regardless of Free Zone location.
If a QFZP rents office space in its Free Zone to other companies, is that a qualifying activity?
It depends. Commercial property rental inside the Free Zone transacted with another Free Zone Person is the only real estate exception. Renting to mainland companies or natural persons remains an excluded activity.
Does treasury lending between group companies count as finance and leasing activities?
No — treasury and financing services to Related Parties are a qualifying activity under Article 2(1)(j), specifically carved out from the finance and leasing excluded activity.
What happens if excluded activity revenue exceeds 5% of total revenue?
The QFZP loses its qualifying status from the beginning of the relevant Tax Period and for the four subsequent Tax Periods — a five-year disqualification in total. All income becomes taxable at 9% during this period.
Is a wealth management firm serving individual clients excluded?
No. Wealth and investment management services are one of the four exceptions to the "transactions with natural persons" excluded activity. A wealth manager can serve individual clients and retain QFZP status.
Last Reviewed: May 2025 | Reference: Ministerial Decision No. 229 of 2025