Qualifying Activities for UAE Free Zone Corporate Tax (Full List)
Being able to quantify both activities prevent free zones from being used as tax shelter…
Why Excluded Activities are defined for Qualifying Free Zone Persons (QFZP)
Excluded activities are business activities from which income is generally treated as non-qualifying income for a Qualifying Free Zone Person. The UAE introduced Excluded Activities to ensure the 0% tax benefits applies to businesses operating with real economic value inside the UAE Free Zones.
Carrying out Excluded Activities does not automatically disqualify a Free Zone Person. Under Federal Decree-Law No. 44, if the de minimis threshold is exceeded during a tax period, the entity can lose its Qualifying Free Zone Person status.
Exempt Persons under UAE Corporate Tax Law
Certain entities in the UAE are classified as Exempt Persons and do not pay corporate tax on specified activities.
Entities such as state-backed institutions, natural resource extraction businesses, and registered non-profit organizations are exempt from corporate tax.
Non-free zone persons are automatically ineligible on the QFZP status.
What are Qualifying Activities?
To illustrate how Excluded Activities work, it helps to outline what Qualifying Activities could look like:
- manufacturing goods or materials
- processing goods or materials
- logistics services
- treasury and financing services
- fund management services
- investment management services
- distribution of goods from a designated zone
- holding shares and securities
- ownership, management and operation of ships
- headquarters services
- aircraft financing and leasing
- reinsurance services
The distribution of goods in or from a Designated Zone is considered a qualifying activity, which includes import, storage, inventory management, and export of goods.
Fund Management Services
Fund management services are a Qualifying Activity for a QFZP. It’s helpful to distinguish this from financing activities, which are part of Excluded Activities.
These services relate to the day-to-day management and operation of an investment fund. The services must be performed by a fund manager appointed by the investment fund or its investors.
Common examples of investment funds include:
- Private equity funds
- Venture capital funds
- Real estate investment funds
- Infrastructure funds
- Hedge funds
- Mutual funds
The activities are generally subject to regulatory oversight by the Competent Authority in the UAE.
The legislation specifically includes the following services:
- Portfolio management
- Risk management
- Discretionary fund management
- Non-discretionary fund management
- Day-to-day operation of an investment fund
- Services delegated to investment advisers or sub-advisers
- Other operational services relating to managing an investment fund
Wealth and Investment Management Services
Holding shares and securities for investment purposes qualifies as a qualifying activity, provided the shares are held for at least 12 months.
- Discretionary investment management
- Non-discretionary investment management
- Investment advisory services
- Portfolio management
- Wealth advisory services
To compare both services:
| Characteristics | Fund management services | Wealth & investment management services |
|---|---|---|
| What does it manage | Manages an investment fund | Manages investments for individual or institutional clients |
| Focus Area | Focuses on operating the fund | Focuses on managing client portfolios |
| Who manages it? | Fund manager is appointed by the fund or investors | Investment manager is appointed by the client |
| What’s the service like? | Includes day-to-day operation of the investment fund | Includes portfolio management and investment advice |
| Qualifying Activity? | Both are Qualifying Activities for QFZPs | Both are Qualifying Activities for QFZPs |
Qualifying Intellectual Property Assets
Income generated from the licensing or commercial exploitation of Intellectual Property assets generally does not qualify for the 0% corporate tax benefit. A Qualifying Free Zone Person (QFZP) cannot automatically treat all intellectual property income as Qualifying Income.
Unlike most Qualifying Activities, income from Qualifying Intellectual Property (QIP) is subject to a separate calculation under the UAE Corporate Tax regime. Only the amount determined under the nexus approach may qualify for the 0% Corporate Tax treatment.
The rules are designed to encourage businesses that perform genuine research and development (R&D), rather than simply holding intellectual property in a free zone.
Overview of Excluded Activities (UAE Corporate Tax Law)
The structural criteria and official list of Excluded Activities are governed by relevant Ministerial Decisions.
To summarize the list of Excluded Activities:
| Excluded Activity or Non-qualifying Activities | Main Exception |
|---|---|
| Transactions with natural persons | Certain Qualifying Activities |
| Banking activities | None |
| Insurance activities | Reinsurance remains qualifying |
| Finance and leasing activities | Certain treasury, aircraft and commodity financing exceptions |
| Ownership/exploitation of immovable property | Commercial property located in a Free Zone and supplied to another Free Zone Person |
| Ownership or exploitation of intellectual property | Except where specifically treated as qualifying intellectual property |
| Ancillary activities | Follow treatment of principal activity |
Transactions with Natural Persons
Transactions with natural persons are generally excluded. This rule generally applies to businesses supplying professional services directly to individual consumers.
Note
A natural person means an individual is acting personally rather than through a legal entity; the restriction does not generally apply simply because an individual owns a company.
Certain exceptions apply for transactions connected with these Qualifying Activities:
- Ownership and operation of ships
- Fund management services
- Wealth and investment management
- Financing and leasing of aircraft
This exception exists because these sectors frequently involve dealings with individuals while remaining internationally focused.
Banking Activities
Banking activities, including lending and deposit-taking, are considered Excluded Activities under the UAE Corporate Tax regime, regardless of whether they are conducted in Free Zones.
Examples include:
- accepting customer deposits
- providing retail or commercial bank loans
- issuing banking facilities
- operating as a licensed bank
- other regulated banking functions
These are regulated banking businesses carried out under UAE banking laws.
Insurance Activities
The exclusion applies to regulated insurance operations. However, reinsurance services remain listed as Qualifying Activities.
This creates a distinction between:
- Insurance companies serving policyholders (excluded)
- Reinsurance businesses serving insurers (qualifying)
That distinction is intentional within the legislation.
Financing services and Leasing Activities (including Headquarter Services)
This category extends beyond banking and includes companies that give credit, lend money, provide financing, and lease assets either under finance leases or operating leases.
However, certain exceptions apply.
- Treasury and financing services to Related Parties
- Treasury and financing services for a QFZP’s own account (introduced in Ministerial Decision No. 229 of 2025)
- Financing and leasing of aircraft
- Structured commodity financing connected with trading of qualifying commodities
Ownership or exploitation of immovable property
Real estate ownership or exploitation is generally excluded unless it relates to commercial property located in a Free Zone and the transaction is with another Free Zone Person. For example, a warehouse inside JAFZA leased to another free zone company may qualify.
Exclusion includes income from ownership, leasing, exploitation, and operation of UAE immovable property (i.e. office leased to mainland or residential apartment leasing).
Ancillary activities
An activity is ancillary where:
- it is necessary for the principal activity; or
- it makes only a minor contribution; and
- it is so closely connected that it should not be treated separately.
Ancillary activities follow the treatment of the principal activity.
For example, manufacturing (packaging, internal storage and product testing) may remain qualifying. Administrative support for regulated banking remains excluded because the principal activity is excluded.
Interaction with de minimis requirements and non-qualifying income
The de minimis rule allows a Qualifying Free Zone Person (QFZP) to earn non-qualifying income without losing its tax advantages, provided that this income does not exceed 5% of total revenue or AED 5 million, whichever is lower.
Income derived from Excluded Activities becomes non-qualifying revenue, which contributes toward the de minimis requirements. A Qualifying Free Zone Person generally remains eligible only while non-qualifying revenue stays within the statutory threshold.
To keep their QFZP status, QFZPs are required to maintain audited financial statements and sufficient records detailing both qualifying and non-qualifying revenue.
QFZP Status: 0% Corporate Tax for Free Zone Companies
To maintain Qualifying Free Zone Person (QFZP) status, a company ensures compliance on conditions set forth in the UAE Corporate Tax Law, including maintaining adequate substance and ensuring that core income-generating activities are conducted within the Free Zone.
Similarly, a QFZP must maintain adequate assets, a sufficient number of qualified employees, and incur adequate operating expenditures to satisfy the adequate substance requirement.
If a QFZP fails to meet any of the compliance conditions during a tax period, it will lose its QFZP status and be subject to the standard corporate tax rate of 9% for that year and the following four years.
2025 Updates: What’s changed?
Ministerial Decision No. 229 of 2025 introduced or clarified several areas, including:
- Treasury and financing services can qualify when performed for Related Parties treasury or for the QFZP’s own account.
These are internal corporate treasury functions rather than banking services offered to the public. - The definition of qualifying commodities was expanded to include environmental commodities (e.g. carbon credits and renewable energy certificates, associated by-products, and certain industrial chemicals where a quoted price exists)
- Trading of qualifying commodities now expressly includes associated financial derivatives and structured commodity financing.
- Distribution activities in a Designated Free Zone clarified
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