A Guide to Trading Qualifying Commodities for Free Zone Companies - 0% Corporate Tax Benefit in UAE

Hey there!

Let’s dive into the world of trading qualifying commodities within Free Zone companies. This might sound like a heavy topic, but we’re going to make it light and engaging. Think of it as a friendly chat over coffee. Ready? Let’s go!

The 0% Corporate Tax Benefit
If you're a QFZP selling services or goods to Non-Free Zone Persons, you can benefit from the 0% corporate tax rate if your income comes from certain qualifying activities, including the trading of qualifying commodities. Sounds great, right? Now, let’s see what it’s all about.

What is Trading of Qualifying Commodities?
Trading of qualifying commodities involves the physical trading of metals, minerals, energy, and agricultural commodities in their raw form. It also includes derivative trading, like using futures or options to hedge against risks. Imagine you’re buying and selling gold, wheat, or oil – that's trading qualifying commodities.

What Counts as a Qualifying Commodity?
Qualifying commodities are traded on recognized commodities exchange markets. These include markets like the Dubai Gold & Commodities Exchange in the UAE or the Chicago Board of Trade and the London Metal Exchange internationally. The commodity must be in a form that meets the trading standards of these exchanges, like gold in bullion form with 99.4% purity.

Meaning of “Raw Form”
In this context, “raw form” means the commodity is in its natural and unprocessed state. Think of it as how it was when it was harvested or extracted. For example, crude oil before it's refined, or wheat before it's processed into flour.

Practical Case Study
Let’s bring this to life with an example.

Case Study: Company X
Company X is a Free Zone Person trading metals. They have a strong relationship with an aluminum manufacturer. Here’s how a typical transaction goes:

Buying Aluminum: Company X buys 10,000 tonnes of aluminum at AED 9,250 per tonne (totaling AED 92,500,000).
Selling Aluminum: They sell this aluminum to a buyer in the automotive industry at AED 9,500 per tonne (totaling AED 95,000,000).
Their gross profit from this trade is AED 2,500,000.

But there’s more:

Warehousing: Company X charges AED 15 per tonne for storage, adding AED 150,000 to their revenue.

Delivery: They charge AED 10 per tonne for delivery, adding another AED 100,000.

So, their total revenue from this transaction is AED 95,250,000. The warehousing and delivery activities are considered ancillary because they are closely related to the main trading activity and make a minor contribution. Therefore, the entire revenue is treated as being derived from qualifying activities.

Ancillary Activities
Ancillary activities support the main trading activity. These can include:

 - Warehousing: Storing commodities before delivery.
 - Delivery: Transporting commodities to the buyer.

These activities are essential but make only a minor contribution compared to the main trading activity.

Why It Matters
Understanding the nuances of trading qualifying commodities can significantly impact your business's tax strategy. It ensures compliance with tax laws and helps you maximize tax benefits.

Need Help?
Feeling a bit overwhelmed? Don’t worry, Fastlane is here to help. We’re experts in corporate tax and can guide you through these complexities. We'll make sure you understand your obligations and help you optimize your tax strategy.

So, let’s make trading qualifying commodities simpler and keep your business on the right track!
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