Free Zone Tax

UAE Free Zone Excluded Activities 2026: What Disqualifies You From 0% Corporate Tax

Modern financial district office towers representing UAE Corporate Tax and Free Zone excluded activities

15 min read

Many Free Zone companies in the UAE assume that once they qualify as a Qualifying Free Zone Person (QFZP), all their income is automatically taxed at 0%. That is not how the law works. A specific list of activities, known as Excluded Activities, is always taxed at the standard 9% Corporate Tax rate, no matter how qualifying the rest of your business looks. Get this wrong, and you do not just lose 0% on that one income stream, you can lose QFZP status for your entire company.

Published: 31 August 2026

Quick Answer

Under UAE Corporate Tax rules for Free Zones, Excluded Activities are income streams that are always taxed at 9%, even for an otherwise-qualifying Free Zone company. They include banking activities, insurance activities (other than reinsurance), finance and leasing activities (other than qualifying aircraft financing/leasing), owning or exploiting immovable property (except Commercial Property in a Free Zone transacted with another Free Zone Person), owning or exploiting intellectual property assets, and most transactions with natural persons. If income from these activities exceeds a de minimis threshold, the lower of AED 5 million or 5% of total revenue, the company can lose Qualifying Free Zone Person (QFZP) status entirely, not just on that income.

Where This Rule Comes From

The Excluded Activities list was originally set out in Ministerial Decision No. 265 of 2023, issued under Cabinet Decision No. 100 of 2023 on Determining Qualifying Income for the Purposes of Corporate Tax, both effective retroactively from 1 June 2023. Ministerial Decision No. 265 of 2023 has since been repealed and replaced by Ministerial Decision No. 229 of 2025, which also applies retroactively from 1 June 2023 and keeps the core Excluded Activities categories in place while updating definitions and some Qualifying Activity carve-outs (commodities trading, distribution from Designated Zones, and finance and leasing definitions in particular). Cabinet Decision No. 100 of 2023 itself was not affected by this update and remains in force. If your Free Zone entity has any income that might fall into an excluded category, always confirm the current position directly with the FTA or a licensed tax advisor before filing, since ministerial decisions in this area have already been amended once.

For background on how the QFZP regime works overall, see our guide on what makes a company a Qualifying Free Zone Person and our companion piece on Qualifying Income for QFZPs.

Qualifying Activities vs Excluded Activities: Not the Same List

Free Zone companies often confuse two separate lists in the legislation. The Qualifying Activities list defines income types that are eligible for 0% Corporate Tax when earned by a QFZP (for example distribution of goods from a Designated Zone, reinsurance services, fund management, wealth and investment management, headquarter services to related parties, treasury and financing services to related parties, and ownership, management and operation of ships). The Excluded Activities list is different: it defines income types that are always taxed at 9%, regardless of how the rest of the company’s activities are structured.

A Free Zone company does not need every dollar of revenue to come from a Qualifying Activity. Revenue that is neither a Qualifying Activity nor an Excluded Activity, ordinary business income from Free Zone or non-Free Zone customers, can often still count as Qualifying Income depending on the counterparty and other conditions. Excluded Activities sit apart from both of these: this income is automatically non-qualifying, full stop, and it is the category most likely to be tested closely if you are audited. For a broader comparison of what Free Zone status actually changes for tax purposes, see our article on Mainland vs Free Zone tax treatment.

For a full breakdown of what does qualify, read our detailed guide to Free Zone Qualifying Activities under Ministerial Decision 229 covering the practical registration side of this regime.

The Excluded Activities List

Below is the full list of Excluded Activities as defined under Ministerial Decision No. 265 of 2023 (carried forward, with updated definitions, under Ministerial Decision No. 229 of 2025).

Excluded Activity	What It Covers	Key Exception / Carve-Out
Banking activities	Regulated banking business conducted under UAE banking licensing law	None generally available to a standard Free Zone trading company
Insurance activities	Insurance and related regulated insurance business	Reinsurance services are treated separately and can qualify as a Qualifying Activity
Finance and leasing activities	Lending, financing arrangements, and leasing of assets	Aircraft financing and leasing that meets the specified conditions is excluded from this category; treasury and financing services to related parties can also qualify separately
Ownership or exploitation of immovable property	Rental income, capital gains, and other income from land and buildings	Commercial Property located in a Free Zone is not excluded where the transaction is with another Free Zone Person
Ownership or exploitation of intellectual property assets	Royalties, licensing income, and other IP-derived income	Income from Qualifying Intellectual Property is addressed separately under its own rules, not as a blanket carve-out from this exclusion
Transactions with natural persons	Sales, services, or other transactions where the counterparty is an individual rather than a company	Specific carve-outs apply, including ship ownership/operation, fund and wealth/investment management, reinsurance, qualifying headquarter services, qualifying treasury/financing services, and qualifying aircraft financing/leasing
Any activity ancillary to the above	Support activities that exist only to facilitate an Excluded Activity	None: if the main activity is excluded, activities ancillary to it are excluded too

Excluded Activities in Practical Terms

Banking and insurance

If your Free Zone entity is not a licensed bank or insurer, this category rarely applies directly. It becomes relevant mainly for Free Zone financial services groups, and it is a reminder that reinsurance is treated more favourably than primary insurance under this regime.

Finance and leasing

This is one of the more commonly triggered exclusions for Free Zone holding and group companies. Intercompany loans, equipment leasing, and financing arrangements outside the related-party treasury exception will usually fall into this Excluded Activity unless they specifically meet the aircraft financing and leasing conditions.

Immovable property

This is the single most common trap for Free Zone companies with UAE real estate exposure. Owning an office building and renting it out, or holding land for capital appreciation, is an Excluded Activity in almost every case. The only carve-out is narrow: Commercial Property physically located in a Free Zone, where the transaction is with another Free Zone Person. Residential property income, and any Commercial Property transaction with a non-Free Zone counterparty, stays excluded.

Intellectual property

Royalty income, licensing fees, and gains from IP assets are excluded by default. Free Zone companies that hold trademarks, patents, or software IP and license it out need to check separately whether that IP meets the narrower “Qualifying Intellectual Property” conditions, which involve tracking qualifying expenditure and, in some cases, an uplift calculation. Absent that, IP income is treated as Excluded Activity income taxed at 9%.

Transactions with natural persons

Selling goods or services directly to individuals, rather than to companies, is an Excluded Activity by default. This catches a lot of consumer-facing Free Zone businesses, retail, direct-to-consumer services, and consulting sold to individuals. The carve-outs are narrow and activity-specific: ship ownership and operation, fund/wealth/investment management, reinsurance, qualifying headquarter services, qualifying treasury/financing services, and qualifying aircraft financing/leasing. If your customer is a person rather than a registered business and your activity is not on that short exception list, that revenue is excluded income.

Ancillary activities

Any activity that exists mainly to support an Excluded Activity is itself excluded. A Free Zone real estate company cannot avoid the immovable property exclusion by re-labelling rental income as a “management fee” for an activity ancillary to that property ownership.

The De Minimis Threshold: How Much Excluded Income Is Too Much

A Free Zone company does not automatically lose QFZP status the moment it earns any Excluded Activity income. Cabinet Decision No. 100 of 2023 sets a de minimis threshold: non-qualifying revenue (which includes Excluded Activity income) is treated as acceptable where it does not exceed the lower of AED 5,000,000 (five million dirhams) or 5% of the company’s total revenue for that tax period.

This is a whichever-is-lower test, not a whichever-is-higher test. For a very large Free Zone company, 5% of total revenue could be well above AED 5 million, but the AED 5 million cap still applies. For a smaller Free Zone company, 5% of total revenue could be far below AED 5 million, and that lower 5% figure is what applies.

The consequence of breaching this threshold is severe and often misunderstood: it is not a proportional loss of 0% status on just the excluded income. Under Article 7 of Ministerial Decision No. 265 of 2023, a Free Zone Person that fails to meet the QFZP conditions, including the de minimis requirement, ceases to be a Qualifying Free Zone Person from the beginning of that tax period and for the four subsequent tax periods. That is a potential five-tax-period lockout at the standard 9% Corporate Tax rate on all income, not just the excluded portion. Given the severity of this consequence, confirm the current position on this rule with the FTA before relying on it for a filing decision.

Worked Example: A Mixed-Income Free Zone Company

The numbers below are illustrative only, designed to show how the de minimis test is applied. They are not based on a real company and should not be used as a benchmark for your own filing.

Assume a Free Zone trading company, “Example FZE,” has the following income in one tax period:

AED 40,000,000 from qualifying trading activity with other Free Zone Persons and non-Free Zone customers that meets the Qualifying Activity conditions
AED 1,500,000 from renting out a small warehouse it owns (immovable property, Excluded Activity, no Commercial Property Free Zone carve-out available because the tenant is a non-Free Zone Person)
AED 500,000 from direct retail sales to individual walk-in customers (transactions with natural persons, Excluded Activity, no carve-out applies)

Total revenue: AED 42,000,000
Total Excluded/non-qualifying revenue: AED 2,000,000

Step 1: Calculate 5% of total revenue.
5% of AED 42,000,000 = AED 2,100,000

Step 2: Compare the AED 5,000,000 cap and the 5% figure, and take the lower.
Lower of AED 5,000,000 and AED 2,100,000 = AED 2,100,000

Step 3: Compare actual non-qualifying revenue to that lower threshold.
AED 2,000,000 (actual) is below AED 2,100,000 (threshold)

Result: Example FZE passes the de minimis test for this tax period. Its AED 2,000,000 of excluded income (the warehouse rental and the retail sales) is taxed at 9%, while its AED 40,000,000 of qualifying income keeps its 0% Corporate Tax treatment, and QFZP status for the rest of the business is preserved.

Now change one input: if the warehouse rental income had been AED 2,200,000 instead of AED 1,500,000, total non-qualifying revenue would be AED 2,700,000, above the AED 2,100,000 threshold. On these illustrative facts, Example FZE would breach the de minimis requirement and, subject to the other QFZP conditions, risk losing QFZP status for that tax period and the following four tax periods, meaning the entire AED 40,000,000 of otherwise-qualifying income would also become subject to 9% Corporate Tax for that period. This is why tracking excluded income closely, in real time, matters far more than most Free Zone companies assume.

Compliance and Record-Keeping Steps

Classify every revenue stream at the point of invoicing, not at year-end. Tag each transaction as Qualifying Activity income, Excluded Activity income, or other non-qualifying income, and record the counterparty type (Free Zone Person, non-Free Zone Person, or natural person).
Track cumulative Excluded Activity and other non-qualifying revenue against both the AED 5 million cap and the 5% of total revenue figure throughout the tax period, not just at filing time. Waiting until year-end to check this leaves no time to correct course.
Keep supporting documentation for every carve-out you rely on: Free Zone status certificates for counterparties on Commercial Property transactions, evidence supporting Qualifying Intellectual Property expenditure, and contracts showing whether a customer is a natural person or a registered entity.
Maintain audited financial statements and management accounts that clearly separate qualifying and excluded income lines, since this separation is what the FTA will expect to see in any review.
Reassess your activity mix whenever you add a new revenue line, a new lease, a new IP licensing arrangement, or start selling to individual consumers, since a single new activity can be enough to push non-qualifying revenue over the threshold.
Review your Corporate Tax registration and Free Zone structure periodically against current Ministerial Decisions, since the underlying rules have already changed once (MD 265 of 2023 to MD 229 of 2025) and may change again.

If you are still assessing whether your Free Zone entity should even be pursuing QFZP status, or whether the standard Small Business Relief route might be simpler for a smaller entity, our guide on Small Business Relief under UAE Corporate Tax walks through that comparison. And if a de minimis breach or classification error has already happened, understanding the penalty exposure matters: see our overview of UAE Corporate Tax penalties and FTA fines.

If your Free Zone company also employs expat staff and you are handling their visa or document paperwork alongside your tax structuring, our partner site Yalah Dubai has a practical guide on inheritance and wills for expats in Dubai, covering how UAE succession rules affect expat employees and shareholders with assets in the country.

Talk to Qaspro Global About Your Free Zone Position

Excluded Activities and the de minimis threshold are two of the easiest ways for an otherwise well-run Free Zone company to lose 0% Corporate Tax status without realising it until filing time. If you want a second set of eyes on how your Free Zone entity’s income streams are classified, message Qaspro Global on WhatsApp: https://wa.me/971551539679.

FAQs

What are Excluded Activities under UAE Corporate Tax?

Excluded Activities are specific income streams that are always taxed at the standard 9% Corporate Tax rate, even for a company that otherwise qualifies as a Qualifying Free Zone Person. They include banking, insurance (other than reinsurance), finance and leasing (other than qualifying aircraft financing/leasing), ownership or exploitation of immovable property (with a narrow Free Zone Commercial Property carve-out), ownership or exploitation of intellectual property, most transactions with natural persons, and any activity ancillary to these.

What is the difference between Qualifying Activities and Excluded Activities?

Qualifying Activities are the specific income types eligible for 0% Corporate Tax when earned by a Qualifying Free Zone Person. Excluded Activities are the opposite: income types that are always taxed at 9%, regardless of the rest of the company’s activity mix. A single Free Zone company can have income in both categories at the same time.

Does renting out property in a Free Zone always count as an Excluded Activity?

Not always. Ownership or exploitation of immovable property is generally an Excluded Activity, but there is a specific carve-out for Commercial Property located in a Free Zone where the transaction is with another Free Zone Person. Residential property income, and any transaction with a non-Free Zone counterparty, remains an Excluded Activity.

Is selling to individual customers always an Excluded Activity?

In most cases, yes. Transactions with natural persons are treated as an Excluded Activity by default. There are specific, narrow carve-outs, including ship ownership/operation, fund and wealth/investment management, reinsurance, qualifying headquarter services, qualifying treasury/financing services, and qualifying aircraft financing/leasing. Outside those specific exceptions, revenue from individual customers is excluded income.

What is the de minimis threshold for Excluded Activity income?

Under Cabinet Decision No. 100 of 2023, non-qualifying revenue (including Excluded Activity income) is acceptable where it does not exceed the lower of AED 5,000,000 or 5% of the company’s total revenue for that tax period. If actual non-qualifying revenue exceeds whichever of those two figures is lower, the de minimis requirement is breached.

What happens if a Free Zone company breaches the de minimis threshold?

Breaching the de minimis requirement, or failing any other QFZP condition, causes the company to cease being a Qualifying Free Zone Person from the beginning of that tax period and for the four subsequent tax periods. This means the standard 9% Corporate Tax rate applies to all of the company’s taxable income for that period, not just the Excluded Activity income that caused the breach. Always confirm current treatment with the FTA before relying on this for a specific filing.

Can intellectual property income ever qualify for 0% Corporate Tax in a Free Zone?

Ownership or exploitation of intellectual property assets is generally an Excluded Activity. Income specifically classified as Qualifying Intellectual Property income is addressed under separate rules involving tracked qualifying expenditure, rather than being treated as a blanket exception to the IP exclusion. Most standard royalty or licensing income outside that specific framework remains Excluded Activity income taxed at 9%.

Does Ministerial Decision No. 265 of 2023 still apply in 2026?

Ministerial Decision No. 265 of 2023 has been repealed and replaced by Ministerial Decision No. 229 of 2025, which took effect retroactively from 1 June 2023 and keeps the core Excluded Activities categories described here while updating certain definitions. Cabinet Decision No. 100 of 2023, which sets the de minimis threshold, was not affected by this update and remains in force. Always confirm you are working from the current version of these rules.

Is reinsurance treated the same as insurance for Free Zone Corporate Tax purposes?

No. Insurance activities are generally an Excluded Activity, but reinsurance services are treated differently and are addressed as a Qualifying Activity in their own right, subject to meeting the applicable conditions.

How often should a Free Zone company check its de minimis position?

It should be tracked continuously through the tax period, not only at year-end. Because the threshold is based on cumulative revenue for the full tax period, a Free Zone company that only checks its Excluded Activity income once a year risks discovering a breach after it is too late to adjust operations or pricing for that period.