UAE Manufacturing Corporate Tax 2026: CT for Industrial and Production Companies
UAE manufacturing corporate tax guide 2026: 9% CT on industrial companies, capital asset deductions, inventory accounting methods for CT, intercompany.
UAE manufacturing CT overview
- Fully taxable at 9%: UAE manufacturing companies (LLCs or free zone companies) pay 9% CT on taxable income above AED 375,000. There is no special manufacturing rate or sector exemption. Small Business Relief (treating taxable income as zero) is available for manufacturers with revenue below AED 3 million until 31 December 2026.
- Revenue recognition for manufacturers: Revenue from goods sold is recognised when control of the goods passes to the buyer — typically on delivery. Long-term manufacturing contracts (custom equipment, shipbuilding) may use percentage-of-completion method, consistent with the accounting policy applied in the financial statements.
- VAT and CT interaction: UAE manufacturers charge 5% VAT on domestic sales and zero-rate exports. VAT is a pass-through — it does not affect taxable income for CT. The manufacturer’s CT taxable income is their profit before tax as per the financial statements, with CT-specific adjustments.
CT deductions for UAE manufacturers
- Machinery and plant: Capital expenditure on manufacturing equipment is deductible through depreciation over the asset’s useful life (consistent with accounting treatment). UAE CT does not impose a specific capital allowances schedule — depreciation per IFRS or IFRS for SMEs is used. Fully depreciated assets that continue to be used: no further CT deduction is available.
- Raw materials and inventory: Cost of goods sold (raw materials consumed, direct labour, production overhead) is deductible in the period of sale. Inventory is valued using FIFO or weighted average — LIFO is not permitted under IFRS and therefore not accepted for UAE CT.
- Factory rent and utilities: Factory rent, electricity, water, and industrial consumables are fully deductible operating expenses. Manufacturers often have significant utility costs — ensure these are properly invoiced and in the company’s name for CT documentation.
- R&D and process improvement: Expenditure on product development, process engineering, and quality improvement is deductible. Manufacturers investing in automation and lean manufacturing upgrades can claim CT deductions on those costs.
Free zone manufacturer QFZP qualification
- Manufacturing in free zones: A manufacturer in a UAE free zone (Khalifa Industrial Zone KIZAD, JAFZA, Sharjah FZ) that produces goods for export to customers outside UAE may qualify as a Qualifying Free Zone Person (QFZP) — 0% CT on qualifying income.
- Qualifying income for manufacturers: Income from manufacturing goods that are exported (or sold to other designated zone companies) — this is a qualifying activity under QFZP rules. Sales of manufactured goods to UAE mainland customers — this income is NOT qualifying income and is taxable at 9%.
- Substance requirements: To maintain QFZP status, the free zone manufacturer must have real economic substance in the free zone — production staff, manufacturing equipment, and management oversight physically in the zone.
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See CT servicesFrequently asked questions
Can a UAE manufacturer deduct the full cost of factory machinery?
Yes — depreciation on factory machinery is deductible for UAE CT, following the same accounting depreciation policy used in the financial statements. If the machine is depreciated over 10 years in the accounts, the CT deduction is 10% per year. There is no accelerated first-year allowance or 100% expensing equivalent in UAE CT (unlike UK AIA or US bonus depreciation). The deduction follows accounting depreciation.
How does UAE CT apply to a manufacturer with both export and domestic sales?
A UAE manufacturer with mixed export and domestic sales is fully taxable at 9% on total profits — exports are zero-rated for VAT but not exempt for CT. CT is calculated on total taxable income (revenue minus deductible expenses) regardless of where the customer is. Only free zone QFZP manufacturers can separate qualifying export income from non-qualifying UAE mainland sales for 0% treatment.
Is a UAE contract manufacturer taxed on its gross revenue or profit?
UAE CT is a tax on taxable income (profit), not revenue. A contract manufacturer earning AED 10 million in revenue with AED 9 million in costs has taxable income of AED 1 million — CT of 9% applies to AED 625,000 (after AED 375,000 exemption threshold) = AED 56,250. Revenue is irrelevant — only profit above the threshold is taxed.
What CT records must a UAE manufacturer keep?
UAE CT requires 7 years of records. For manufacturers: production cost records and inventory valuation workings (supporting COGS deduction), depreciation schedules for all capital assets, intercompany agreements for raw material purchases from related parties, transfer pricing documentation (if group revenue exceeds AED 200 million), revenue recognition workings for long-term contracts, and the audited financial statements used as the basis for the CT return.
Official UAE Government Sources