Corporate Tax for Industrial Zone Factories in the UAE

A factory in KEZAD, JAFZA or a similar zone computes taxable income like any manufacturer, then splits it: qualifying income at 0%, other taxable income at 9% above the band. The split is the whole game, and it runs on customer and activity analysis, not on the licence alone.

Qualifying income includes manufacturing income from transactions with other free zone persons and qualifying export flows; mainland sales and excluded activities sit in the 9% bucket. The accounting system must tag revenue accordingly from the first invoice.

Costs are allocated between the 0% and 9% buckets on a reasonable basis, typically by revenue or activity. Shared factory overheads need a documented allocation key; arbitrary splits will not survive review. Audited financial statements are a condition of the status, not just good practice.

Manufacturers compute taxable income as sales less cost of goods manufactured and operating costs, adjusted under Article 20 of Federal Decree-Law No. 47 of 2022, at the standard 0%/9% bands. Cost of goods manufactured is the discipline: raw materials, direct labour and production overheads, with work in progress and finished goods valued honestly at the year-end.

Capital intensity shapes the profile: plant, machinery and moulds are capitalised and depreciated, while repairs and consumables are deducted as incurred. Related-party sales of finished goods, or purchases of raw materials from a related supplier, must be arm's length under Article 34, and manufacturers are the sector where transfer pricing most often decides the tax bill.

Deductions that matter most for industrial zone factories:

• Manufacturing costs are deductible, allocated between the 0% and 9% buckets reasonably.
• Zone licence, substance and audit costs are deductible business expenses.
• Interest remains subject to the Article 30 limitation in both buckets.

Article 18 sets five conditions for Qualifying Free Zone Person status: adequate substance in the UAE, qualifying income, no election to be taxed normally, transfer-pricing compliance and any further prescribed conditions, which include audited financial statements. A brass-plate factory with production elsewhere fails the first test.

The de minimis rule adds a cliff: non-qualifying revenue must stay within the lower of 5% of total revenue or AED 5 million (Ministerial Decision No. 229 of 2025), or the 0% is lost for the period. Monitor the ratio quarterly; discovering the breach at the year-end is too late.

Manufacturing's recurring errors are valuation and related parties: work-in-progress guessed at the year-end, obsolete stock never written down properly, transfer prices accepted from the group without benchmarking, and capital-revenue confusion on plant overhauls. Toll-manufacturing arrangements also confuse: the toll manufacturer's revenue is the processing fee, not the value of the customer's goods passing through.

Manufacturing is one of the clearest qualifying activities: manufacturing or processing of goods or materials is listed in Ministerial Decision No. 229 of 2025, so a Qualifying Free Zone Person manufacturing in a free zone can earn 0% on qualifying income. Sales to other free zone persons, exports and mainland sales each need analysis, mainland sales are generally taxed at 9%, but the manufacturing activity itself is firmly on the qualifying side.

Industrial zones such as KEZAD and JAFZA combine this with customs advantages. The practical requirements are adequate substance, audited financial statements and transfer-pricing compliance under Article 18; the 0% is earned through compliance, not granted by the licence alone.

This is the free zone page: the 0% is available on qualifying manufacturing income where every condition holds, while mainland sales, excluded activities and any breach of the de minimis rule push income into the 9% bucket. Many factories find the compliance cost worthwhile; some prefer the simplicity of 9% on everything by electing out.

A JAFZA factory has AED 30 million of revenue: AED 24 million qualifying (free zone and export customers), AED 6 million mainland sales. Total costs of AED 24 million are allocated pro rata:

Note there is no AED 375,000 band on the non-qualifying slice for a Qualifying Free Zone Person. If mainland sales had exceeded the de minimis threshold, the entire AED 6 million slice analysis would change and the 0% could be lost.

For help applying these rules to your own business, including registration, computations and filing, contact us for a quote.