Manufacture of special-purpose machinery

Manufacturing is a Qualifying Activity. However, for the sale of special-purpose machinery to be taxed at 0%, the goods must be physically manufactured or processed within a Designated Zone. Forensic focus will be on the 'substantial transformation' of raw materials into machinery to ensure it is not merely a distribution or re-packaging operation, which would be classified as an Excluded Activity if the customer is a non-Free Zone person.

Audit Red Flag

Outsourcing Core Income Generating Activities (CIGA) such as assembly or precision engineering to mainland subcontractors while retaining 0% tax benefits.

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