Structured Commodity Finance and the UAE Qualifying Activities Regime: Countertrade

Question 1. Should “associated structured commodity financing” be performed only by the trader, or can it also qualify when performed by a third-party financier?

One possible reading is that “associated” limits the scope to financing directly embedded in a trader’s own commercial arrangements, for example, deferred payment mark-ups or supplier prepayments. Under this narrow approach, SCF would qualify only as a side-effect of a trader’s physical transactions. The Alvarez & Marsal commentary reflects this position, suggesting that SCF should be treated as ancillary to commodity trading in order to enjoy the 0% rate.[1] On that logic, financing qualifies only if conducted by the trading house itself, since ancillary activities must “naturally and integrally complement” the main business.

A broader interpretation, however, is equally plausible. The Minister did not need to insert SCF into Article 2(3)(c) merely to cover a trader’s ancillary functions, since such activities are already captured under Article 2(1)(n). The deliberate choice to place SCF directly within the definition of trading of Qualifying Commodities, alongside physical trading and hedging, points instead to a wider purpose. This placement suggests that SCF is intended not simply as an accessory but as an autonomous Qualifying Activity in its own right. Such positioning reduces the risk of recharacterization as a disqualified “financial services activity” and allows the scope to extend to financing structures undertaken either by traders themselves or by specialized financiers, provided the financing is inseparably linked to the trading of Qualifying Commodities.

The use of the word “associated” does not contradict this reading. Rather, it sets the necessary nexus between the financing and the underlying commodity trade. The term signals that not every loan secured by commodities is qualifying: the financing must be structurally tied to the movement, storage, or sale of Qualifying Commodities, rather than being a generic financial service.

From a practical perspective, this means that the form of the actor is less decisive than the substance of the linkage. A Free Zone trader providing prepayment finance to a supplier, or a Free Zone financier offering warehouse receipt lending to a buyer, can both qualify, provided the financing is inseparably bound to real commodity transactions. Conversely, lending that is merely collateralized by commodities but not embedded in the trading cycle would fall outside scope and risk being treated as an Excluded “financial services activity.”

On this broader interpretation, a third-party financier,  such as a Free Zone entity specialising in warehouse receipt finance, prepayment facilities, or streaming agreements, can fall within the Qualifying regime, so long as its financing is demonstrably tied to commodities covered by Article 1.

This approach strikes a balance: it ensures that structured financing models widely used in commodity markets are protected under the Qualifying regime, while preserving the boundary against stand-alone lending or banking activity.

[1] https://www.alvarezandmarsal.com/thought-leadership/middle-east-tax-alert-uae-corporate-tax-qualifying-free-zone-person-regime-updates-uae-ministerial-decision-no-229-of-2025

Question 2. Is the Minister’s list exhaustive?

Article 2(3)(c) states that structured commodity financing “shall include” nine examples: prepayment, factoring, forfaiting, countertrade, warehouse receipt financing, export receivable financing, project finance, Islamic trade finance, and streaming. The language “shall include” is significant. It indicates an illustrative, not exhaustive list. Had the legislator intended to restrict scope, it would have used “shall mean.”

This interpretation is reinforced by CTGFZP1, which in Section 10.1 confirms that the listed activities under the Qualifying Free Zone Person regime are illustrative only, and that any activity must be evaluated in the context of the nature of the Qualifying Activity as a whole. The guidance makes clear that the listing of an activity does not create a closed category; it serves instead as a framework for interpretation.

This matters because common SCF structures such as pre-export finance and repurchase transactions (repos) are not expressly named. Yet both share the functional characteristics of the listed examples: they monetize existing or future commodity flows and tie repayment to the underlying trade. It would be inconsistent to treat these as excluded while recognizing forfaiting or streaming. The safer reading is therefore that the list sets out core illustrations, leaving room for analogous models so long as they maintain the required nexus to Qualifying Commodities.

Case Studies

This article is the first in a series of case studies. Each episode will examine one SCF structure from both a doctrinal and practical perspective: describing how it works in global trade, how it maps onto the Minister’s list, how it interacts with the earlier Decision No. 265 of 2023, and how it fits within the CTGFZP1 “natural and integral” test.

We begin with Episode 1: Countertrade.

Countertrade

International trade literature, including IMF Finance & Development, UNCTAD, and OECD sources, distinguishes four principal forms of countertrade: barter, counter-purchase, buy-back, and offset (compensation) arrangements. Each involves reciprocal non-cash obligations but varies in structure and degree of integration with the underlying trade.

While economists often criticize countertrade as inefficient, it has historically flourished in contexts of foreign exchange shortage, sanctions, or political restrictions on capital flows.

By explicitly referencing “countertrade,” Decision No. 229 is properly understood as encompassing all four above forms, ensuring comprehensive protection for commodity traders operating in markets where non-cash settlement is commercially unavoidable.

The express inclusion of countertrade in Article 2(3)(c) marks an important development. Under the earlier Ministerial Decision No. 265 of 2023, the resale of non-cash consideration received in lieu of payment for Qualifying Commodities risked disqualification, particularly where the assets were non-commodities or fell within the list of Excluded Activities such as real estate. By naming countertrade as a form of “associated structured commodity financing”, the Minister has designated that non-cash settlements directly arising from commodity sales remain within the scope of Qualifying Activities. This legislative choice ensures that Free Zone traders compelled to accept goods, receivables, or other assets instead of cash are not penalised in their tax treatment, and that the subsequent monetisation of such assets is treated as inseparably linked to the original Qualifying Commodity trade.

From a doctrinal perspective, UAE law has long recognised that a sale may be concluded for non-cash consideration. Article 129 of the Civil Transactions Law stipulates that a contract is valid if there is consent, a lawful subject, and a lawful consideration. Part 3 regulates a bartering, which is defined as “exchange of property or a property right for a non-money consideration”. Thus, in purely private law terms, a contract exchanging, for example, fertiliser for machinery is a valid contract of sale, not something exotic.

The tax consequences were different. Under Ministerial Decision No. 265 of 2023, the resale of non-cash assets received in settlement of a Qualifying Commodity trade risked falling into the catalogue of Excluded Activities, such as real estate transactions, or classifies as separate operation of trading in non-commodities, and thereby disqualifying the income if supplied to non-Free Zone recipients. The Minister, by expressly including countertrade in Article 2(3)(c) of Ministerial Decision No. 229 of 2025, resolved this issue. Non-cash settlements arising directly from the trading of Qualifying Commodities are now treated as associated structured commodity financing and fall within the 0% Free Zone regime. The significance lies not in imputing a financing spread, as in forfaiting, but in preserving the after-barter position of the trader: where the trader receives non-commodity assets (machinery, consumer goods, or even immovable property), their subsequent monetisation is treated as qualifying because it is inseparably associated to the original commodity trade.

Barter is the most elementary form, consisting in the simultaneous exchange of goods of equal value. A fertiliser trader delivering USD 10 million of urea and receiving industrial machinery of equivalent value illustrates the barter form of countertrade. While the original delivery of urea falls squarely within Article 1 commodities, the machinery received as non-cash consideration is not itself a Qualifying Commodity. Under the framework of Ministerial Decision No. 265 of 2023, the subsequent resale of that machinery would have been categorized as trading in non-commodities and therefore as a Non-Qualifying Activity when supplied to non-Free Zone recipients. By expressly including countertrade in Article 2(3)(c) of Ministerial Decision No. 229 of 2025, the Minister has clarified that such resale, being inseparably linked to the original commodity transaction, is deemed part of the trading cycle and preserved as qualifying income.

Counterpurchase involves a reciprocal commitment by the exporter to buy goods from the importer’s country as a condition of sale. For example, a fertiliser trader sells USD 50 million of urea to a Middle Eastern government, subject to an undertaking to purchase agricultural equipment worth USD 52 million within two years. The initial urea sale is qualifying. The resale of the agricultural equipment, however, would under MD 265 of 2023 have been disqualified as non-commodity trading. MD 229 now shields the resale of such non-cash consideration, provided it arises directly from the urea transaction.

Buy-back (compensation) arrangements involve delivery of capital goods in exchange for outputs produced using those goods. For instance, a UAE engineering firm supplies petrochemical equipment to a Gulf refinery, with repayment effected through petrochemical products generated by the plant. In this case, both legs of the transaction fall within the regime: the supply of capital equipment is treated as associated structured commodity financing under Article 2(3)(c), while the receipt and onward sale of petrochemicals constitutes a Qualifying Commodity trade under Article 1.

Section 10.1 of the Corporate Tax Guide for Free Zone Persons No. CTGFZP1 confirms this interpretation, stressing that activities qualify only if they form a natural and integral part of a coherent (commodity trading) business. Countertrade, in each of its forms, meets this test because the non-cash obligations arise directly from commodity sales. The legislator’s choice to list countertrade in Article 2(3)(c) therefore functions as a legislative safeguard: it prevents the fragmentation of commodity trading cycles and ensures that traders compelled by commercial necessity to accept in-kind settlement do not forfeit access to the 0% regime.

Looking ahead

In the coming episodes, we will turn to the other forms of structured commodity financing expressly listed in Article 2(3)(c). The next discussion will address factoring and forfaiting, two of the most widely used receivables-based techniques. We will examine how they operate in practice, how they interact with the UAE’s Factoring Law No. 16 of 2021, and how the Minister’s explicit inclusion of both resolves potential interpretive conflicts with the framework of non-Qualifying Activities. Thereafter, we will move systematically through the remaining structures in the Minister’s list—prepayment, warehouse receipt financing, export receivable financing, project finance, Islamic trade finance, and streaming financing—to evaluate how each is accommodated within the Free Zone 0% regime.

The disclaimer

Pursuant to the MoF’s press-release issued on 19 May 2023 “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. See the full press release here.

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 I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.