Excluded Activities: What a Free Zone Company Cannot Earn 0% On

Most analysis of the free zone regime works forwards: find your activity on the Qualifying list, conclude that your income qualifies. That reading misses how the decision is built. The Excluded Activities in Article 2(2) cut across the Qualifying Activities in Article 2(1), and where they cut, they win. An activity can sit squarely on the qualifying list and still generate income taxed at 9%.

This matters more than the qualifying list in practice, because exclusions are where companies are caught. Nobody assumes banking qualifies. A great many companies assume their ordinary customers do.

The five exclusions

The exclusion that catches ordinary businesses

Paragraph (a) is the one to understand first. Any transaction with a natural person is an Excluded Activity, with only four exceptions — ships, fund management, wealth and investment management, and aircraft financing and leasing. Everything else a free zone company sells to an individual produces non-qualifying revenue.

For a manufacturer selling into a distribution chain of companies, this is rarely an issue. For a business whose customer base includes individual professionals, owner-operators, or small unincorporated traders — common across the UAE — it is capable of consuming de minimis headroom quietly and continuously.

Why the carve-outs are written the way they are

The carve-outs are drafted as cross-references to specific paragraphs of the qualifying list, which is precise but easy to over-read. Two points are worth holding on to.

• Insurance is excluded, but the exclusion is without prejudice to reinsurance services and to headquarter services to Related Parties. An insurance group in a free zone therefore has to be clear about which entity does what — a reinsurance operation and an insurance operation are on opposite sides of the line.
• Finance and leasing are excluded, but not where the activity is Qualifying Commodities trading, ship ownership and operation, treasury and financing to Related Parties or for the company's own account, or aircraft financing and leasing. Structured commodity financing is expressly part of the commodities definition, which is why it survives an exclusion that would otherwise swallow it.

What the carve-outs do not do is create a general principle. There is no reading of Article 2(2) under which an activity escapes an exclusion because it is commercially similar to one that is carved out. The cross-references are exhaustive.

Immovable property: the narrowest gate in the decision

Ownership or exploitation of immovable property is excluded, other than Commercial Property located in a Free Zone where the transaction in respect of that property is conducted with a Free Zone Person. Three conditions have to hold together, and each removes a large part of the field.

1. The property must be commercial, not residential.
2. It must be located in a Free Zone.
3. The transaction must be with a Free Zone Person.

Commercial property in a free zone let to a mainland business fails the third. Residential property in a free zone let to a free zone company fails the first. Property outside a free zone fails the second whatever else is true. The practical effect is that free zone property income qualifies only inside a closed loop, and most real letting arrangements sit outside it.

Ancillary works in both directions

Paragraph (f) excludes activities ancillary to any of the exclusions. This is the mirror of paragraph (n) on the qualifying side, and it closes an obvious gap: a support function attached to an Excluded Activity does not become qualifying by being a support function. Servicing, administration and back-office work carried on around excluded business inherits the exclusion.

How to test your own position

Work in the order the decision does, not in the order that feels natural. Take each revenue line and ask, first, whether an exclusion applies; only then ask whether a Qualifying Activity applies. An exclusion that bites makes the qualifying analysis irrelevant, and doing it the other way round produces a confident answer to the wrong question.

• Is the counterparty a natural person? If so, does the transaction relate to ships, fund management, wealth and investment management, or aircraft financing and leasing? If not, it is excluded.
• Is the activity banking, insurance, or finance and leasing? If so, does one of the specific paragraph cross-references restore it?
• Does the income arise from owning or exploiting immovable property? If so, all three of commercial, in a Free Zone, and with a Free Zone Person must hold.
• Is the line a support function for something already excluded? If so, it is excluded too.

Everything the exclusions catch is non-qualifying revenue, and non-qualifying revenue is measured against the de minimis cap — the lower of 5% of total revenue or AED 5 million. The exclusions are therefore not just a rate question on a slice of income; they are the main route by which a company uses up the headroom that protects its entire 0% position.

The rules sit in Ministerial Decision No. 229 of 2025, issued on 28 August 2025 and effective from 1 June 2023, which repealed Ministerial Decision No. 265 of 2023. Confirm the position for your own facts before relying on it.