Manufacturing vs. Distribution: It’s crucial to distinguish between companies engaged in manufacturing and those in distribution. Manufacturers procure raw materials and transform them into finished products, while distributors purchase products for resale.

• Manufacturer’s Income in a Free Zone: When a company is involved in the manufacturing of goods and is located in a UAE free zone, their income from manufacturing and selling products is considered qualifying income for UAE corporate tax purposes.

• Tax Exemption for Manufacturers: Assuming the manufacturer meets all the relevant conditions, including demonstrating economic substance in the UAE, their income derived from manufacturing and selling products as a free zone entity will be exempt from UAE corporate tax.

• Specific Provisions for Distributors: It’s important to note that specific provisions exist for distributors of goods in free zones, exempting their income under certain conditions. However, these provisions are distinct from those applicable to manufacturers.

Key Takeaway: Manufacturers of goods located in UAE free zones can benefit from a tax exemption on their income generated through manufacturing and sales activities, provided they meet the necessary conditions, including demonstrating economic substance in the UAE. This exemption ensures that their qualified income remains tax-free under UAE corporate tax regulations.

Practical Case Study

ABC FZ-LLC, a company based in a UAE free zone, specializes in manufacturing goods. They procure raw materials, transform them through manufacturing processes, and then sell the finished products. ABC FZ-LLC wants to understand the tax implications of their income earned through manufacturing and sales activities.

Key Entities:

1. ABC FZ-LLC: A manufacturing company located in a UAE free zone.

Key Questions:

1. Does the income generated by ABC FZ-LLC, a free zone-based manufacturer of goods, qualify for tax exemption under UAE corporate tax Law?
2. What are the conditions that ABC FZ-LLC must fulfill to benefit from the tax exemption on their manufacturing income?

Resolution:

1. Taxation of ABC FZ-LLC: For a manufacturing company like ABC FZ-LLC, income generated from the manufacturing and sale of products is considered qualifying income under UAE corporate tax regulations.

2. Exemption on fulfilling conditions by ABC FZ-LLC: Assuming that ABC FZ-LLC meets all the necessary conditions, including demonstrating economic substance in the UAE, their income from manufacturing and selling products as a free zone entity will be exempt from UAE corporate tax.

Conclusion: ABC FZ-LLC, as a manufacturer of goods located in a UAE free zone, can benefit from a tax exemption on their income earned through manufacturing and sales activities. This exemption is contingent on meeting specific conditions, including demonstrating economic substance in the UAE. By complying with these requirements, ABC FZ-LLC can ensure that their qualified income remains tax-free under UAE corporate tax regulations.