Free Zone Companies to Enforce VAT in the UAE

Dec 2018

When it comes to business setup in the UAE, one of the most attractive parameters to the international investors is the presence of trade free zones as they are exempted from tax payments. Tax idea of paying no taxes drive the idea of setting up a business in UAE Free Zones. Since 1st Jan 2018, VAT implementation has been made as a compulsion to the UAE business entities. According to the UAE VAT Law, the free zone companies need to undergo VAT registration. If you are an investor or a business owner planning to invest or start your business in UAE free zones, you do need to go register for VAT and need to be aware of certain important aspects. Do read below…

What Is a Designated Free Zone?

According to the rules set by the UAE VAT Law, a designated free zone is an area that meets the condition specified under the Executive Regulation of VAT Law, and so is treated as an outsider. According to the VAT implementation rule, the transfer of goods between these free zones will bear no tax. Let’s have a look at the designated free zones in UAE, as specified by the Cabinet.

List of Designated Free Zones in the UAE

1. Abu Dhabi

  • Free Zone of Khalifa Port
  • Abu Dhabi Airport Free Zone (ADAFZ)
  • Khalifa Industrial Zone (KIZAD)

2. Dubai

  • Jebel Ali Free Zone (JAFZA)
  • Dubai Cars and Automotive Zone
  • Dubai Textiles City
  • Free Zone in Al Quoz
  • Free Zone in Al Qusaiz
  • Dubai Aviation City
  • Dubai Airport Free Zone (DAFZA)

3. Sharjah

  • Hamriyah Free Zone
  • Sharjah International Free (SAIF) Zone

4. Ajman

  • Ajman Free Zone

5. Umm al-Quwain

  • Umm-Al-Quwain Free Trade Zone in Ahmed Bin Rashid Port
  • Umm Al-Quwain Free Trade Zone in Sheikh Mohammed Bin Zayed Road

6. Ras al-Khaimah

  • RAK Free Trade Zone
  • RAK Maritime City Free Zone
  • RAK Airport Free Zone

7. Fujairah

  • Fujairah Free Zone
  • Fujairah Oil Industry Zone (FOIZ)

Applicability of VAT in Designated Free Zones in the UAE

According to one of the sources, it has been noted that the Dubai Multi Commodities Centre (DMCC) has urged its companies, whose annual taxable supply turns out to be a minimum of AED 375,000, to get registered under the VAT Law. A similar move has also been taken by JAFZA as well. As per the Federal Cabinet Decision, failure to register for VAT would lead to a penalty payment.

Impact of VAT on Designated Free Zones in the UAE

During Sale of Goods

A party that imports goods to mainland must account under reverse charge.

During Sale of Services

Designated zone companies must raise a tax invoice at the rate of 5%.

Thus, you have an idea regarding VAT registration urgency in spite of being established in a free zone in the UAE. The sooner you opt for the same, the better. Now, implementing the VAT rate in an existing or a new business needs certain specifications that are to be fulfilled. Understanding the legal law turns out to be of utmost importance. At this point, the best option is to have a word with a tax consultant who can help you deal with the implementation of the VAT process. JAXA is here to help you out and would assist you in heading the way. To initiate the process, do contact us – we’d be happy to assist you.