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FTA Private Clarifications: Favourable Outcomes on Beneficial Recipient Test and Quoted Price Definition

The UAE Federal Tax Authority (FTA) recently published its Corporate Tax – Summary of FTA Private Clarifications issued up to May 2026, an anonymised compendium of the positions it has taken in response to private clarification requests submitted by taxpayers.

For our team, the publication carried a particular significance: we were pleased to see in the review, the outcome of a private clarification request that we identified the need for, prepared and pursued on behalf of a client. The said request put two questions of genuine interpretive uncertainty under the Free Zone regime to the FTA, and on both, the FTA adopted the taxpayer-favourable position we had advanced.

Specifically, the FTA clarified that:

  1. Where a Qualifying Free Zone Person (QFZP) sells Qualifying Commodities to another Free Zone Person as part of the Qualifying Activity of trading in Qualifying Commodities, it does not need to determine whether that customer is the Beneficial Recipient of the goods. The Beneficial Recipient test is relevant only where the Free Zone Person does not conduct a Qualifying Activity or an Excluded Activity and derives income from transactions with another Free Zone Person.
  2. The price of a cash-settled derivative of a commodity is a valid source of the Quoted Price for that commodity, provided the price is specified by a Recognised Commodity Exchange Market or a recognised price reporting agency.

Both these positions matter well beyond our client’s facts, and accordingly, deserve a deeper look. In this article, we set out the questions as we framed them for the FTA, the competing interpretations that made a clarification necessary, and the analysis that supported the outcome.

1.  No Beneficial Recipient test for Qualifying Activities with Free Zone counterparties

A QFZP benefits from the 0% Corporate Tax rate on its Qualifying Income under Article 3(2) of the Corporate Tax Law, with the categories of Qualifying Income prescribed by Cabinet Decision No. 100 of 2023.

Article 3(1) of the Cabinet Decision No. 100 of 2023 sets out two principal Qualifying Income limbs:

  • income derived from transactions with a Free Zone Person, except income derived from Excluded Activities (Article 3(1)(a)); and
  • income derived from transactions with a Non-Free Zone Person, but only in respect of Qualifying Activities that are not Excluded Activities (Article 3(1)(b)).

Article 3(2) of the Decision adds that, for the purposes of the first limb, the Free Zone counterparty must be the ‘Beneficial Recipient’ of the relevant goods or services, broadly meaning that it has the right to use and enjoy them free of any contractual or legal obligation to pass them on to another person.

The interpretive problem

The difficulty arose where a QFZP carried on a Qualifying Activity, such as the trading of Qualifying Commodities under Article 2(1)(c) of Ministerial Decision No. 229 of 2025, and its counterparty happened to be another Free Zone Person. Which limb governs?

Two readings were available, with materially different consequences.

  1. On an activity-based reading, the decisive factor is the nature of the activity, not the status of the counterparty. Income from a Qualifying Activity that is not an Excluded Activity falls within Article 3(1)(b) even where the counterparty is a Free Zone Person. Since the Beneficial Recipient condition in Article 3(2) is expressly tied only to Article 3(1)(a), no Beneficial Recipient analysis is required. As per this reading, Articles 3(1)(a) and 3(1)(b) operate as separate, self-contained limbs.
  2. On a recipient-based reading, Article 3(1)(b) is confined by its express reference to ‘transactions with a Non-Free Zone Person’. Every intra-Free Zone transaction, regardless of the activity, would fall to be tested under Article 3(1)(a) and would therefore trigger the Beneficial Recipient requirement. This reading drew apparent support from Article 4(2)(a)(3) of the Cabinet Decision No. 100 of 2023, which treats transactions with a Free Zone Person who is not the Beneficial Recipient as non-qualifying revenue for de minimis purposes without distinguishing the nature of the underlying activity, and from certain passages of the FTA’s Free Zone Persons Guide (CTGFZP1), including Sections 4.4.1 and 10.1, which reference Qualifying Activities in the context of supplies to Non-Free Zone Persons.

Why the activity-based reading was the better view

In our analysis for the client, we concluded that the activity-based approach found materially stronger support in the structure of the legislation and the FTA’s own administrative guidance.

The Law: Textually, Article 3(2) of Cabinet Decision No. 100 of 2023 attaches the Beneficial Recipient condition only to Article 3(1)(a) and makes no reference to Article 3(1)(b). Reading the condition into Article 3(1)(b) would require importing a limitation that is neither articulated nor intended, and would undermine the deliberate structural separation between the two limbs.

The FTA Guide: The revenue-classification roadmap in Section 4.4.1 of Guide CTGFZP1 points the same way: it routes revenue from Qualifying Activities directly into qualifying revenue, reaching the counterparty and Beneficial Recipient questions only where the transaction does not relate to a Qualifying Activity. Sections 3.1, 3.2.3, 4.3 and 5.2 of the Guide, and the FTA’s Basic Tax Information Bulletin for Free Zone Persons, each list ‘transactions relating to Qualifying Activities that are not Excluded Activities’ as a free-standing source of Qualifying Income, with no restriction as to the counterparty’s status, in contrast to the first limb, to which the Beneficial Recipient condition is expressly attached. The Guide’s worked examples, including its manufacturing, commodity trading and Designated Zone distribution examples, likewise treat revenue from Qualifying Activities as Qualifying Income whether the customers are Free Zone or Non-Free Zone Persons.

Purposive interpretation: The purposive case was equally strong. The Free Zone regime is designed to incentivise genuine economic activity conducted from within Free Zones. The recipient-based reading would have produced commercially arbitrary results: A QFZP performing an identical Qualifying Activity, from the same Free Zone premises, with the same substance, would enjoy the 0% rate when selling to a mainland or foreign customer but lose it when selling to a neighbour in the same Free Zone. Likewise, a trader dealing exclusively in Qualifying Activities could be penalised solely because of its customers’ location, a factor unconnected to any tax-policy rationale.

Nevertheless, the statutory language left genuine room for the restrictive reading, the Guide is expressly non-binding, and its examples carry a disclaimer against reliance for advice purposes. In order to resolve this residual uncertainty, we recommended that the client seek a private clarification.

The FTA’s position

The FTA has now confirmed the activity-based approach. Where a QFZP sells goods to another Free Zone Person as part of the Qualifying Activity of trading in Qualifying Commodities, it does not need to determine whether the customer is the Beneficial Recipient. The Beneficial Recipient test is relevant only where the QFZP does not conduct a Qualifying Activity or an Excluded Activity and derives income from transactions with another Free Zone Person. This is the interpretation we had advanced on behalf of our client, and its confirmation removes a significant compliance burden and a material source of uncertainty for Free Zone Persons.

2.  Cash-settled derivative prices are a valid source of the Quoted Price

The second question concerned the definition of Qualifying Commodities under Ministerial Decision No. 229 of 2025. Article 1 of that Decision defines Qualifying Commodities as metals, minerals, industrial chemicals, energy and agriculture commodities and associated by-products (excluding products packaged for retail sale), together with environmental commodities such as carbon credits, but only ‘provided a Quoted Price for such commodities exists’. The Quoted Price is in turn defined as the price of the Qualifying Commodity or a Related Commodity specified by a Recognised Commodity Exchange Market or a recognised price reporting agency listed under Ministerial Decision No. 230 of 2025. A Recognised Commodity Exchange Market includes exchanges established outside the UAE that are licensed and regulated by the relevant foreign authority, which captures the major international venues such as NYMEX, ICE and SGX.

The interpretive problem

The practical difficulty was that for many energy commodities, market activity on recognised exchanges occurs predominantly, and sometimes exclusively, through cash-settled derivative contracts rather than physical or physically-settled trading. The definition of Quoted Price speaks of the ‘price of the Qualifying Commodity or a Related Commodity‘. On a strict and literal reading of those words in isolation, it was arguable that only prices quoted directly for the commodity itself, when physically traded or physically settled under a derivative contract, would qualify, and that cash-settled derivative prices fell outside the definition altogether. On that view, commodities whose price discovery takes place in the cash-settled derivatives market could never be Qualifying Commodities, however deep and transparent that market might be.

Why the derivative prices should count

We considered that reading unsustainable when the Decision is read as a whole. Article 2(3)(c) of Ministerial Decision No. 229 of 2025 expressly includes associated financial derivatives trading, used to hedge the risks of physical trading, within the Qualifying Activity of trading of Qualifying Commodities, and in doing so draws no distinction between physically-settled and cash-settled contracts. It would be incoherent for the legislation to recognise cash-settled hedging derivatives as part of the Qualifying Activity while disregarding the prices established on the very exchanges where those contracts trade when testing whether the commodity has a Quoted Price.

Market reality reinforced the point. Derivative markets frequently provide the deepest liquidity, the greatest transparency and the most widely accepted benchmarks for price discovery, and physical transactions are themselves routinely priced by direct reference to derivative quotations. Derivative contracts, whether physically or cash settled, are standardised, with clear specifications for the underlying commodity as to grade and quality, and even for cash-settled contracts the settlement amount is determined solely by the price performance of the underlying commodity, so the quotation remains directly linked to the commodity’s value.

Further, since Recognised Commodity Exchange Markets routinely publish standardised quotations for cash-settled derivatives, and a Quoted Price is simply a price specified by such a market, the definition logically extends to those quotations. Again, however, the literal counter-argument was tenable enough to warrant certainty, and the question was put to the FTA.

The FTA’s position

The FTA confirmed that the price of a cash-settled derivative of a commodity meets the condition demonstrating the existence of a Quoted Price for that commodity, provided the price is specified by a Recognised Commodity Exchange Market or a recognised price reporting agency. Traders of commodities whose benchmark pricing lives in the cash-settled derivatives market can therefore access the 0% rate on the same footing as traders of physically quoted commodities.

Why this matters

Beyond the substance of the two positions, the episode illustrates the value of the private clarification mechanism itself. The UAE Corporate Tax regime is young, and there are inevitable interpretive gaps. Where the amounts at stake are significant, a well-constructed private clarification request, one that squarely presents the ambiguity, the competing readings and the supporting legislative and administrative material, gives the taxpayer binding certainty and, as this published summary shows, can help shape the interpretive landscape for the market as a whole.

If you would like to discuss how these clarifications affect your business, or whether a private clarification request may be appropriate for your circumstances, please get in touch with our team.

Disclaimer

The MoF’s press-release issued on 19 May 2023 states that “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA.

The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that we have tried my best to avoid. If you find any inaccuracies or errors, please let us know so that we can make corrections.