Jebel Ali Free Zone opened in 1985 and remains the country's
industrial anchor. It wraps around Jebel Ali Port, the largest
container port in the region, and its tenants are manufacturers,
distributors, logistics operators and re-exporters rather than
service firms. That physical character is why JAFZA companies tend
to have an easier time with corporate tax than tenants of the
service-oriented zones.
The VAT side: goods, not services
JAFZA is a designated zone, which is a VAT classification and not
a corporate tax one. In broad terms, a supply of goods between two
designated zones can fall outside the scope of UAE VAT, while goods
entering the mainland from a designated zone are treated as an
import and attract VAT at that point. Services are different: the
designated zone rules deal with goods, and services supplied from
JAFZA generally follow the ordinary place of supply rules.
This distinction catches people. A company assumes designated
zone status makes everything it does VAT free, when the status only
ever addressed the movement of goods.
The corporate tax side
Because JAFZA is a designated zone, the distribution of goods
from JAFZA can be a qualifying activity, which is not the case in
zones without the status. Manufacturing and processing are
qualifying activities, and logistics services performed for other
free zone persons generally sit well within the regime. This is why
JAFZA tenants are among the better placed QFZPs in the country when
their substance is genuine.
| Manufacturing and processing | Qualifying. Real
production in the zone is the cleanest case in the whole
regime. |
|---|
| Distribution from the zone | Can be qualifying,
supported by designated zone status. |
|---|
| Logistics for free zone and foreign
counterparties | Generally qualifying. |
|---|
| Sales into UAE mainland | Not qualifying. A
mainland-facing revenue line is what usually erodes the
position. |
|---|
Substance is rarely the problem here
A company with a warehouse, plant, staff and physical throughput
is not going to struggle to demonstrate adequate substance. What
does need attention is documentation: transfer pricing for
intra-group sales, which are common in JAFZA structures, and audited
financial statements, which are a hard condition of QFZP status with
no small company exemption.
The other thing to monitor is the mainland revenue line. Selling
into the UAE market is normal and often commercially sensible, but
it is non-qualifying income and it counts against the de minimis
limit of the lower of 5% of revenue or AED 5,000,000. Businesses
that grow a mainland channel without watching that ratio can lose
QFZP status for five years over a commercial decision nobody flagged
as a tax one.