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Scrap metal tax shocks Jafza firms

Investor confidence in Jebel Ali and the UAE’s other free zones has been jolted after Dubai Customs told scrap metal dealers in Jafza that they were liable for an export tax.

Investor confidence in Jebel Ali and the UAE’s other free zones has been jolted after Dubai Customs told scrap metal dealers in Jafza that they were liable for an export tax. The backdated demand, which could cost some companies over US $1 million, has led to fears across Jafza about other potential taxes.

Jafza’s tax free status is one of its biggest attractions for firms. However, last month, scrap metal dealers in the free zone received a directive from Dubai Customs ordering the payment of $68 per metric tonne in export duty. The tax must be paid a year retroactively. “The Federal Customs Authority of the United Arab Emirates has informed us… that you are exporting metal scrap from the UAE without meeting their requirements and permission,” read the Dubai Customs memo.

The affected businesses were given 15 days from the date of the letter to settle the issue before their cargo movements were stalled. The companies were stunned by the demand, as Jafza has always been a tax free zone. Its website, for instance, states that companies based in the free zone are exempt from all import or re-export duties and that employees will not be charged income taxes either. Corporate taxes are not applicable for a period of 50 years, a concession that is renewable.

“We were completely shocked after receiving the memo from Dubai Customs,” said one Jafza-based steel dealer. “This export tax totally conflicts with the information we received whilst setting up the business here. This is a free zone and we were assured no duty would be levied for another 50 years. The details are included in our contracts, but they have broken that promise.”

Jafza is home to around 1000 scrap dealers, including some of the biggest in the region. Many face arrears amounting to over $1 million. “We are talking about a huge percentage of revenue, which is simply not justified,” the dealer said. “Our business has reached a complete standstill. Luckily we deal with other countries too, but we cannot progress in the UAE now,” he added.

The tax was seemingly imposed to stop the export of scrap, so as to boost steel supplies in the local market. However, dealers are dodging the tax by moving business overseas or through evasion. “[Some companies] have already started mis-declaring goods to overcome the problem. They are cheating the government,” the trader said.

A number of companies approached the Dubai Customs for clarification after receiving the memo. They were referred to the UAE Federal Customs, who stated that the tax applied to all firms in Jafza because the ruling was above the free zone’s exemptions.

Although the tax is only applicable to scrap metal exports, companies operating in other fields have also been shaken by the sight of the UAE’s federal authorities imposing taxes and overruling the free zone authorities. “Our company is not currently affected by the export tax, however we fear the move could affect us in the future,” stated Shahbaz Younus, sales & marketing director of Jafza-based AAA Trading. “This is supposed to be a tax free zone, which is the main reason people base their businesses here. Otherwise we could easily base ourselves anywhere else in the Middle East.”

“We have talked to other companies and there is much uncertainty in the market. These taxes will negatively affect people’s business. If they decide to start imposing further taxes, which directly relate to our company, we will definitely consider moving to another location,” Younus added.

Logistics Middle East attempted to contact Jafza, but as the magazine went to press it had not received any response.

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