- MD 229 of 2025 replaces MD 265 of 2023 and applies retroactively from June 2023, meaning free zone companies must reassess income already reported, not just plan forward.
- Some activities previously treated as qualifying may now be excluded, and vice versa, even where the underlying business has not changed.
- Distribution, logistics, holding company, and IP licensing sectors are the most likely to be affected given historically contested classification boundaries.
- Mainland income earned under the Executive Council Resolution No. 11 dual license framework must be tracked separately from qualifying free zone income assessed under MD 229.
Ministerial Decision No. 229 of 2025 replaces MD 265 of 2023 and revises the list of Qualifying and Excluded Activities that determine free zone corporate tax treatment.
The change applies retroactively from June 2023, meaning free zone companies need to reassess whether income they already earned and reported still qualifies for the lower tax rate under the new list.
The revision arrives alongside Executive Council Resolution No. 11 of 2025, which lets free zone companies operate in mainland Dubai while keeping mainland income separately accounted for and taxed at the standard 9 percent rate. This guide walks through what actually changed and what free zone finance teams need to check.
| Detail | What applies |
|---|---|
| Legal basis | Ministerial Decision No. 229 of 2025, replacing MD 265 of 2023 |
| Retroactive effect | Applied from June 2023 |
| Governs | Qualifying and Excluded Activities for Qualifying Free Zone Person status |
| Related reform | Executive Council Resolution No. 11 of 2025 (free zone mainland dual license) |
| Mainland income treatment | Taxed at standard 9 percent rate, tracked separately from qualifying free zone income |
| Practical impact | Some previously qualifying activities may now be excluded, and vice versa |
“A retroactive change to the qualifying activities list means free zone finance teams are not just planning for next year, they are re-checking last year.”
Why the qualifying activities list needed revision
MD 265 of 2023 was the UAE’s first detailed attempt to define exactly which activities a free zone company could conduct while still qualifying for the reduced corporate tax rate on qualifying income. Like any first attempt at a detailed technical list, it left ambiguities that free zone companies and their advisors spent nearly two years working through in practice, discovering edge cases and interpretation questions the original decision had not fully anticipated.
Ministerial Decision No. 229 of 2025 responds to that accumulated practical experience, refining category boundaries, clarifying activities that had been ambiguous under the 2023 list, and adjusting which activities sit in the qualifying versus excluded categories based on how the corporate tax regime has actually played out in its first years of operation.
The retroactive application to June 2023 is the detail most likely to catch finance teams off guard. This is not a forward-looking change taking effect from the decision’s publication date; it reaches back to reassess activity classification for a period companies have already filed returns for, which creates a genuine compliance task rather than just a planning exercise.
What actually changed in the qualifying and excluded activities
The specific category boundaries under MD 229 differ from MD 265 in ways that vary by sector, but the general pattern is a tightening and clarification of categories that had previously been broadly worded. Activities that sat in a grey zone under the old list, arguably qualifying depending on interpretation, are more likely to have been explicitly classified one way or the other under the new decision, removing some of the ambiguity but potentially reclassifying activities some companies had been treating as qualifying.
Free zone companies should not assume their activity classification carries over unchanged simply because their business has not changed. The list itself has moved, which means the same underlying business activity could sit differently relative to the qualifying and excluded categories than it did under MD 265, even without the company doing anything differently.
A Dubai free zone logistics and distribution company had classified its revenue as qualifying income under MD 265 of 2023, based on an interpretation of the distribution activity category that its tax advisor considered reasonable at the time. Under MD 229 of 2025, the distribution category has been redefined with more specific conditions attached.
The company’s finance team now needs to reassess whether its actual revenue streams, going back to June 2023 given the retroactive effect, still meet the redefined qualifying conditions. If some revenue no longer qualifies under the new definition, the company may need to consider whether amended returns or voluntary disclosures are appropriate for the affected periods, working closely with its tax advisor to determine the right corrective path.
Handling the retroactive compliance task
Retroactive application means free zone companies need to go back through their revenue classification for every period since June 2023 and check it against the new list, not just apply the new list going forward from the decision’s publication date. This is a meaningfully larger task than a simple forward-looking classification update, since it potentially touches multiple already-filed tax returns.
Where reassessment reveals that some previously qualifying income no longer meets the qualifying conditions under MD 229, companies need to work through the Federal Tax Authority’s voluntary disclosure process rather than waiting for an audit to surface the discrepancy. Voluntary disclosure generally carries more favorable treatment than a discrepancy the FTA identifies independently, so companies should prioritize this reassessment rather than treating it as a lower priority than forward-looking compliance work.
See our guide on how corporate tax rules actually work for free zone entities for the underlying mechanics of Qualifying Free Zone Person status that this decision directly modifies.
How this interacts with the free zone mainland dual license
Executive Council Resolution No. 11 of 2025 lets free zone companies obtain a branch license, dual license, or temporary permit to operate in mainland Dubai without a separate mainland subsidiary. That resolution and MD 229 are not the same reform, but they intersect directly for any free zone company using the dual license to earn mainland income.
Mainland income earned under a dual license is taxed at the standard 9 percent rate and must be tracked separately from qualifying free zone income assessed under MD 229’s categories. A free zone company running both streams needs genuinely separate management accounts, not just a notional split, since a finance team that commingles the two risks miscalculating both the mainland tax liability and the qualifying income ratio that determines whether the company retains its Qualifying Free Zone Person status at all.
See our guide on how the Dubai dual license framework actually operates for the licensing side of this framework that finance teams need to understand alongside the tax classification rules covered here.
What typically falls into excluded activity territory
Excluded activities under both the old and new decisions tend to cluster around transactions with mainland UAE persons for certain activity types, and activities the UAE considers inherently connected to the domestic market rather than genuinely free-zone-appropriate cross-border or intra-free-zone business. MD 229’s revisions generally sharpen the boundary conditions within these categories rather than changing the fundamental logic of what counts as excluded.
Free zone companies conducting any transactions with mainland counterparties should review those relationships specifically against the new decision, since transactions that sat comfortably within a qualifying category under the old broader wording may now require closer analysis of the specific counterparty and transaction structure to confirm continued qualifying treatment.
See our guide on UAE qualifying income for a detailed breakdown of how qualifying income calculations work at the transaction level, which is the practical unit finance teams need to reassess under MD 229.
Documentation and record-keeping expectations
Given the retroactive nature of this change, free zone companies should expect the Federal Tax Authority to expect clear documentation showing how revenue was classified at the time, and how that classification has been reassessed under MD 229. Simply restating a new classification without a documented reassessment trail is unlikely to satisfy an FTA audit inquiry, since the authority will want to see the analysis, not just the conclusion.
Companies should also keep documentation of any voluntary disclosures filed as a result of this reassessment, along with the underlying analysis that led to the disclosure, since this paper trail becomes important evidence of good-faith compliance efforts if the FTA later raises questions about the affected periods.
See our guide on what every UAE business genuinely needs for compliance for the broader record-keeping discipline that supports a defensible position during any FTA review.
Sector-specific considerations worth flagging
Free zone companies in distribution, logistics, holding company structures, and intellectual property licensing tend to be the sectors most affected by shifts in qualifying activity definitions, since these are the categories where the boundary between qualifying and excluded treatment has historically been most contested in practice. Companies in these sectors should prioritize their MD 229 reassessment ahead of sectors where the classification boundaries have remained comparatively stable.
See our guide on how a mainland holding company is structured in the UAE for how holding company income classification interacts with the qualifying activities framework, a useful comparison point for free zone holding structures reassessing their position under MD 229.
How this interacts with the Domestic Minimum Top-up Tax
Large multinational groups with UAE free zone operations should also check how MD 229’s revised qualifying activities interact with the UAE’s Domestic Minimum Top-up Tax, which applies a separate minimum effective tax rate calculation for large groups regardless of any qualifying free zone treatment achieved under the standard corporate tax framework. A group whose free zone entity qualifies for the reduced rate under MD 229 may still face a top-up tax exposure at the group level if its overall effective tax rate falls below the applicable minimum threshold.
Finance teams at qualifying multinational groups should treat MD 229 reassessment and DMTT calculation as connected exercises rather than sequential, separate compliance tasks, since a change in qualifying income classification under MD 229 can flow directly into a different DMTT position for the group as a whole. Groups that manage these two calculations in separate workstreams, run by different teams on different timelines, are the most likely to miss this connection until an external auditor or the FTA itself flags the inconsistency during a later review.
See our guide on the UAE’s Domestic Minimum Top-up Tax for how this separate framework applies to large multinational groups alongside the standard qualifying activities rules covered here.
Common mistakes when approaching MD 229 compliance
- Assuming activity classification carries over unchanged from MD 265 without actively reassessing against the new decision.
- Treating the retroactive effect as optional or lower priority compared to forward-looking classification work.
- Commingling mainland dual license income with qualifying free zone income in the same accounts.
- Failing to document the reassessment analysis, leaving no defensible trail if the FTA later raises questions.
- Delaying voluntary disclosure of any newly identified discrepancy rather than raising it proactively with the FTA.
When professional help is worth it
A free zone company with simple, clearly qualifying income and no mainland transactions may be able to confirm its continued qualifying status with a straightforward internal review. Companies with more complex revenue streams, mainland dual license activity, or any transactions that sat in a grey zone under MD 265, should get specialist tax advice before finalizing their position under MD 229.
An e.zone advisor who works with free zone tax classification daily can walk a finance team through the retroactive reassessment methodically, activity by activity, rather than leaving gaps that surface later during an FTA review. See e.zone’s guide on how a UAE bank transaction profile gets built behind the scenes for how transaction-level documentation discipline supports both banking and tax compliance simultaneously.
Given how much interpretation still surrounds specific edge cases within the new list, free zone companies should also watch for further FTA clarifications or public guidance through 2026, since ministerial decisions of this kind are often followed by supplementary guidance that resolves ambiguities the decision text itself leaves open.
Frequently asked questions
Why does MD 229 apply retroactively?
It responds to nearly two years of practical experience under MD 265 of 2023, and the retroactive effect to June 2023 means companies need to recheck already-filed periods against the new list, not only apply it going forward.
What should a company do if reassessment shows previously qualifying income no longer qualifies?
Work through the Federal Tax Authority's voluntary disclosure process rather than waiting for an audit, since voluntary disclosure generally receives more favorable treatment than an FTA-identified discrepancy.
How does MD 229 interact with the Domestic Minimum Top-up Tax?
A group whose free zone entity qualifies for the reduced rate under MD 229 may still face DMTT exposure at the group level if its overall effective tax rate falls below the applicable minimum threshold, so the two calculations should be treated as connected.
Does MD 229 affect companies using the free zone mainland dual license?
Yes. Mainland income under a dual license is taxed at the standard 9% rate and must be tracked separately from qualifying free zone income under MD 229's categories to avoid miscalculating either figure.
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