Guide for Value Added Tax on Designated Zones in the UAE

The government of the United Arab Emirates aims to provide a conducive environment for all the businesses which are coming in from all over the world. Many people know about the different free zones in the country which assist in the growth and development of the businesses but not many know about designated zones in the United Arab Emirates.

This article will explain what a designated zone is and how Value Added Tax (VAT) is applicable to a business in such a zone.

What is a Designated Zone in the UAE?

A Designated Zone can be described as an area that is regarded as situated outside the boundaries of the country but only for the purposes of Value Added Tax (VAT). As the location is considered outside the country, VAT is not applicable to the goods or services transported.

There are different conditions that need to be fulfilled in order for a location to be considered as a Designated Zone. These conditions are enumerated below:

1. The government has to make a cabinet decision in which it provides the moniker of the designated zone to the area.
2. The geographic area must be fenced from all sides.
3. The operator of the designated zone must comply with all the rules and regulations of the Federal Tax Authority (FTA).
4. The location should have a good security measure that will allow a secure entry and exit of both individuals and goods to and from the designated zone.
5. An internal procedure of storing, maintaining and processing the various good must be present in the designated zone.

These are the different conditions that need to be fulfilled in order for the government to term the geographic location as a designated zone.

VAT Treatment for Goods with regards to Designated Zones in UAE

Not all the goods will be an exception to VAT. The place of supply of goods and various other conditions will also come into play in deciding if VAT will be applicable to the business. The conditions applicable to the goods for the treatment of VAT are as follows:

1. If the goods are supplied to a Designated Zone from a Designated Zone then the goods in question will be regarded as Non-taxable goods.
2. If the goods are supplied from a Designated Zone to the Mainland then the goods in the question will be regarded as taxable at a rate of 5%. (Here the Mainland regards to the location which is in the UAE apart from the Designated Zones in the country)
3. If the goods are supplied from a Mainland to a Designated Zone then the goods will be regarded as taxable at a rate of 5%.
4. If the goods are supplied from a Designated Zone to a country overseas or any of the GCC countries the goods will be regarded as Non-Taxable.
5. If the goods are supplied from any of the countries overseas or any of the GCC countries to a Designated Zone then the goods will be regarded as Non-Taxable.

VAT treatment of Services with regards to Designated Zones in the UAE

The supply of services can be subjected to Value Added Tax when the services are supplied to and from the designated zones in the United Arab Emirates. Even if the place of supply of the services is a Designated Zone in the UAE, it will be considered to be inside the country. In layman’s language, this means that whether the services are supplied from the Mainland to a Designated Zone or the services are supplied within the Designated Zone, the Value Added Tax will be applicable to all the services at a standard 5%.

List of Designated Zones in the United Arab Emirates

Here is a list of Designated Zones in the UAE:

1. Jebel Ali Free Zone
2. Dubai Cars and Automotive Zone
3. Dubai Textile City
4. Free Zone area in Al Quoz
5. Free Zone Area in Al Qusais
6. Dubai Aviation City
7. Dubai Airport Free Zone
8. Ajman Free Zone
9. Free Trade Zone of Khalifa Port
10. Abu Dhabi Airport Free Zone
11. Khalifa Industrial Zone
12. Hamriyah Free Zone
13. Sharjah Airport International Free Zone
14. Fujairah Free Zone
15. Fujairah Oil Industry
16. Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
17. Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road
18. RAK Free Trade Zone
19. RAK Maritime City Free Zone
20. RAK Airport Free Zone

Thus in the end we can say that the Goods and Services can be considered as Taxable or Non-Taxable depending on the type of supplies and also the location of the supplies. There are also various circumstances that need to be fulfilled in order for the goods or services to be considered as VAT Exempted. This exemption can help in understanding the business in a better way or can help in increasing the profits of the company.

If you are looking for VAT related Services or any knowledge of the treatment of Goods and Services in the UAE (Mainland, Free zone, Designated Zones) then feel free to Contact Us. JAXA Chartered Accountants will be glad to assist you in your business journey.