Everything You Must Know About Revised List of VAT Designated Zones
VAT has been introduced in the UAE with effect from January 1st, 2018. From then on a lot of amendments has been made in the UAE VAT Law (Federal Decree-Law No. 8 of 2017) and the Tax Procedures Law. Most recently the Federal Tax Authority (FTA) has added the list of VAT Designated Zones in the UAE. Taxable persons doing business in the country should understand the definition of Designated Zones and the applicability of VAT in such zones. VAT consultants in Dubai can help businesses understand the nuances of VAT in Designated Zones.
This article discusses the recent changes to the list of VAT Designated Zones in the UAE as well as the definition and features of such zones. Read ahead.
New Changes in List of VAT Designated Zones in the UAE
The FTA has made certain amendments to the list of Designated Zones in the UAE as specified in the Federal Decree-Law No. 8 of 2017. The following are the amendments made to the list:
- Dubai Commerce City has been classified as a Designated Zone effective from 1st January 202
- Dubai Textile City has been removed from the list of Designated Zone effective from 4th April 2021
- The Free Zone Area in Al Quoz is no longer treated as a Designated Zone with effect from 1st July 2021
- RAK Airport Free Zone has ceased to be a Designated Zone effective from 4th July 2019
What are Designated Zones in the UAE?
Generally, VAT applies to the supplies of goods that take place within the territorial jurisdiction of the UAE. However, right from the start, free zones have been treated as outside the territorial jurisdiction of the UAE. In the case of VAT, this is not the case. Only those free zones listed in the Cabinet Decision are eligible for special VAT treatment and that special VAT treatment has certain limitations. Such free zones listed in the Cabinet Decision are termed Designated Zones for VAT purposes. As per the FTA, a Designated Zone must be:
- Regulated by stringent control measures
- Having tight security procedures in place to regulate and control the movement of goods and people to and from the free zone
- Having Customs procedures in place to control the movement of goods into and out of the Designated Zone
- Will be treated as being outside the territory of the UAE for VAT purposes for certain supplies of goods
VAT Applicability in Designated Zones in the UAE
Recently the UAE amended the Cabinet Decision No. 88 of 2021 to avoid the double taxation of goods supplied from a Designated Zone. The amendments specify certain scenarios in which the supply of goods will be treated as outside the scope of VAT in the UAE. They are:
- Goods incorporated/attached to/become part of/ are used in the production of other goods
- Goods delivered outside the UAE, if the supplier obtains and retains Customs papers as evidence for the movement of the goods from the designated zone. Also, the supplier reasons commercial evidence to prove the goods will be moved outside the UAE
- Goods delivered in the, if the supplier retains evidence to prove that the goods were imported along with the evidence to prove that VAT has been paid on the import. Also, goods must be transferred from a Designated Zone to be delivered inside the UAE.
Applicability of VAT on Shipping/Delivery Services in Designated Zones
As per the previous Article 51, goods supplied in the Designated Zones will be treated as taking place within the UAE and therefore within the scope of VAT. However, the new amendments have brought in an exception to this VAT rule. VAT consultants in Dubai can provide more insight into this exception. Right now check out the following scenarios that should be met to apply the exception:
- The shipping or delivery service must be made by the same supplier of goods
- The supplier of goods should be a non-resident and not registered for VAT in the UAE
- The goods must be sold electronically
- The supplier of the goods must not be the same person as the owner of the electronic platform
Consult with the Best VAT Consultants in Dubai, UAE
Taxable persons doing business in the free zones should take note of the latest updates to the rules regarding VAT on Designated Zones in the UAE. A new free zone has been added to the list and some free zones were removed from the list of Designated Zones in the UAE. Businesses operating the affected free zones should consider the future VAT implications with the help of VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA). JCA can help the affected businesses to create a strategy for VAT compliance in the UAE. JCA is one of the best tax agents in Dubai approved by the Federal Tax Authority. We provide services including VAT registration, VAT assessment, VAT return filing, VAT reconsideration, VAT penalty appeal services etc. Contact us today for ensuring VAT compliance at an affordable price.