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.

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.