2026 Free Zone Shake-Up: How New Regulations Will Affect Tax Benefits & Business Structures

The UAE’s free zone framework is entering a new phase in 2026, shaped by updated corporate tax regulations and a clearer definition of qualifying activities. These changes are meant to reinforce the credibility of the free zone regime, align it with global tax standards, and ensure that preferential tax treatment is linked to genuine economic activity.  

For investors, trading houses, and multinational groups, the implications extend well beyond compliance, influencing structuring decisions, operational footprints, and long-term tax planning.

Corporate Tax Context and the Role of Free Zones

The UAE introduced federal corporate tax at a standard rate of 9 per cent for financial years beginning on or after June 1, 2023. Profits up to AED 375,000 remain subject to a zero per cent rate, while income above that threshold falls within the taxable bracket. Free zones continue to hold a central role in the country’s economic strategy, offering a zero per cent corporate tax rate on income derived from specific qualifying activities, provided strict conditions are met.

Recent regulatory updates confirm that free zones remain a priority for attracting capital and supporting diversification. At the same time, the authorities have moved decisively to remove ambiguity, ensuring that only businesses with real operations benefit from tax incentives.

Ministerial Decisions 229 and 230 of 2025

A key development ahead of 2026 is the replacement of Ministerial Decision No. 265 of 2023 with Ministerial Decision No. 229 of 2025. This revision clarifies and broadens the scope of qualifying commodity trading for corporate tax purposes in free zones.

Under the new decision, qualifying commodities are no longer restricted to items traded “in raw form.” Free zone entities may now qualify when trading metals, minerals, industrial chemicals, energy commodities, agricultural commodities, and associated by-products, provided a quoted price exists. Environmental commodities have also been brought within scope. This expansion is particularly relevant for trading groups, manufacturers, and intermediaries operating within industrial and sustainability-linked supply chains.

To support consistency, Ministerial Decision No. 230 of 2025 lists recognized commodity exchanges and price reporting agencies. A quoted price must originate from one of these recognized sources, providing certainty to taxpayers and reducing disputes around valuation and eligibility.

Qualifying Free Zone Person (QFZP): From Status to Substance

Perhaps the most significant shift for 2026 is the tightening of the Qualifying Free Zone Person (QFZP) criteria. Free zone companies can no longer rely on their license alone to secure a zero per cent tax rate. Instead, they must actively demonstrate compliance with a defined set of requirements.

To qualify as a QFZP, an entity must be incorporated, established, or registered in a UAE free zone and must conduct approved qualifying activities. Income eligible for the zero per cent rate must arise from those activities or from transactions with other free zone entities or foreign counterparties, subject to prescribed conditions.

Engaging directly with mainland UAE businesses generally disqualifies income from the zero per cent rate, aside from specific excluded activities permitted under the regulations. This reinforces the need for careful transactional structuring and clear segregation of revenue streams.

Revised Substance Requirements

Economic substance has become the cornerstone of the free zone tax regime. The Federal Tax Authority has made it clear that preferential treatment depends on demonstrable activity within the UAE.

Adequate substance includes a physical presence appropriate to the business model, qualified employees based in the country, and sufficient operating expenditure incurred locally. Shell structures and minimal operations are unlikely to satisfy these expectations. For groups using free zone entities as regional hubs, this necessitates a reassessment of staffing, office arrangements, and cost allocation.

Audit requirements have also been formalized. Free zone companies with annual revenue exceeding AED 50 million must prepare audited financial statements. This obligation introduces an additional layer of governance and transparency, aligning free zone operations with international reporting norms.

Alignment Across Major Free Zones

Another expected outcome of the 2026 regulatory environment is greater alignment across the UAE’s major free zones. Historically, variations in interpretation and enforcement created uncertainty for businesses operating across multiple jurisdictions. The recent ministerial decisions, combined with clearer QFZP standards, point towards a more uniform application of corporate tax rules.

For investors, this alignment reduces regulatory arbitrage but increases predictability. Business structure decisions will increasingly focus on operational efficiency and strategic fit, rather than perceived regulatory gaps between free zones.

Implications for Business Structures and Planning

The cumulative effect of these changes is a shift from form-driven structures to operation-driven ones. Groups that previously centralized profits in lightly staffed free zone entities will need to reconsider their models. In some cases, this may involve consolidating activities, relocating personnel, or revisiting intercompany arrangements.

At the same time, the expanded definition of qualifying commodity trading opens new opportunities for businesses active in industrial, energy, and environmental markets. Entities that align their operations with the clarified criteria can continue to benefit from the zero per cent rate, supported by greater regulatory certainty.

In short, the 2026 free zone shake-up underscores the UAE’s commitment to maintaining a competitive yet credible tax environment. Free zones remain a powerful tool for growth, investment, and international trade, but access to tax benefits now demands clear substance, compliant activities, and robust governance.

For businesses operating in or considering the UAE free zones, proactive review and restructuring will be essential. Early alignment with the updated QFZP requirements and substance standards will help secure tax efficiency while supporting sustainable, long-term operations in one of the region’s most dynamic economies.

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