Changing an election after the Free Zone rules changed

A commodity trader in a UAE Free Zone made an election in its first Corporate Tax Return for FY2023 not to apply the 0% Corporate Tax rate under the Free Zone regime. At the time, this was a reasonable and conservative decision. Based on the rules then in force, the company did not have sufficient certainty that it could apply the Free Zone Corporate Tax regime.

Then the legal framework changed.

Ministerial Decision No. 229 of 2025 revised the definitions of Qualifying Activities and Commodities, with retrospective effect from 1 June 2023. Under the updated rules, the client’s activity could qualify for the Free Zone regime.

But there was a practical issue: the election had already been made and was generally locked in for five tax periods. There was also no obvious route in EMARATAX to change it. For the client, this had significant consequences. The company could have lost access to the Free Zone Corporate Tax regime for five years solely because of an election made under the previous legal framework.

Willow Tax & Legal prepared a legal position explaining why the election should be capable of reconsideration in light of the retrospective change in the law. We engaged with the FTA, explained the specific facts and legal basis, and escalated the matter until it was considered at the appropriate level.

The issue was successfully resolved: the client can change its election.

This allowed the company to revisit its Corporate Tax position in light of Ministerial Decision No. 229 of 2025 and the updated Free Zone framework.

Why this matters and how we can help

This case shows that a filing position that appears locked in may still be capable of being revisited where the legal framework has changed retrospectively.

For Free Zone companies that made an election not to apply the 0% Corporate Tax rate in FY2023 or FY2024, the key question is whether the company’s activities could now qualify under the updated Free Zone rules.

We can help assess whether the 0% Corporate Tax rate conditions are met, identify the available options, and outline a practical route for correcting the Corporate Tax Return, where appropriate.