A Guide to Value Added Tax (VAT) on Designated Zones in the UAE

There are more than 30 free zones in the UAE that offer foreign investors many benefits including 100% ownership, repatriation of profits and tax benefits. However, since the introduction of the VAT in 2018, more than 20 free trade zones have been categorised as designated zones for VAT purposes. In general, free zones are not outside the scope of VAT but special rules apply for the free zones categorised as designated zones by the Federal Tax Authority. Foreign investors need to know how VAT applicability differs in designated free zones and non-designated free zones before they choose any free zone in the UAE.

What are the Designated Zones in the UAE?

A Designated Zone is considered as being outside the UAE for VAT purposes as per Article 51 para. 1 Cabinet Decision No. 52/2017. This means special rules will apply to the goods and services transacted between the designated zones. Only the free zones nominated as per Cabinet Decision No 52/2017 are considered designated zones. However, the free zones that have been identified as designated zone are not automatically treated as being outside the UAE for VAT purposes. There are four main criteria to be met to be identified as a designated zone. The Designated Zone must be a

1. Fenced geographical area
2. It should have strict security measures and Customs procedures to control the entry and exit of people and the movement of goods
3. Specific internal procedures should be there for keeping, storing and processing goods within the Designated Zone
4. The administrator of a Designated Zone needs to comply with the FTA procedures

VAT Applicability on Transfers of goods into a Designated Zone

a. Transfers From Outside the UAE

The FTA treats the Designated Zones as outside the UAE for VAT purposes. In line with this treatment, the supply or transfer of goods into the Designated Zone from outside the UAE will be considered a transaction outside the UAE. As a result, the UAE VAT is not applicable to such a supply of goods.

b. Transfers from the UAE Mainland

The FTA considers the transfer of own goods from the UAE mainland into a Designated Zone as not export from the UAE. As a result, such a supply of goods into the Designated Zone will only be treated as local supplies and chargeable to VAT at 5%.

c. Transfers Between Designated Zones

Transaction of goods between Designated Zones will be considered outside the scope of VAT if two of the following conditions are fulfilled:

1. The goods should not be released into circulation either in part or in full; they should not be modified in any way during the transaction.
2. The transaction should take place as per the rules for Customs suspension in accordance with the GCC Common Customs Law.

d. Services Provided in Designated Zones

Further, it needs to be noted that if any services provided in the designated zones will be considered as provided in UAE and are chargeable to VAT at 5%. And the same treatment is taken for the supply of water and any form of energy.

e. Goods Consumed Within Designated Zones

Goods in a Designated Zone will be treated as imported into the UAE by the owner if the following conditions are satisfied and will be chargeable to VAT at 5%.

1. The Goods are consumed by the importer unless the Goods are incorporated into, attached to or otherwise form part of or are used in the production of other goods located in a Designated Zone which itself is not consumed.
2. The Goods are unaccounted for.

The Complete List of Designated Zones in the UAE

Designated Zones in Abu Dhabi

1. Free Trade Zone of Khalifa Port
2. Abu Dhabi Airport Free Zone
3. Khalifa Industrial Zone (KIZAD)
4. Al Ain International Airport Free Zone
5. Al Butain International Airport Free Zone

Designated Zones in Dubai

1. Jebel Ali Free Zone (North-South)
2. Dubai Cars and Automotive Zone (DUCAMZ)
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. International Humanitarian City – Jebel Ali

Designated Zones in Sharjah

1. Hamriyah Free Zone
2. Sharjah Airport International Free Zone

Designated Zones  in Umm Al Quwain

1. Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
2. Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road

Designated Zones in Ras Al Khaimah

1. RAK Free Trade Zone
2. RAK Maritime City Free Zone
3. Al Hamra Industrial Zone – Free Zone
4. Al Ghail Industrial Zone – Free Zone
5. Al Hulaila Industrial Zone – Free Zone

Designated Zones in Fujairah

1. Fujairah Free Zone
2. FOIZ (Fujairah Oil Industry Zone)

Designated Zones in Ajman

1. Ajman Free Zone

VAT Consultants in the UAE

Choosing mainland jurisdiction or UAE offshore or free zones, that too 40 Free Zones to start a business is not an easy decision. It requires professional advice and guidance.  The investors need to know the right free zone that suits their purposes as most of the zones have a plethora of facilities linked to the cost and space and visas and above all have restrictions on business activities. Jitendra Chartered Accountants (JCA) is a one-stop shop for investors and provides services including company formation, auditing and VAT-related services. JCA’s highly qualified business setup consultants would assist the businessmen in choosing the right free zones and legal structure for their companies.

Apart from that, JCA’s expert tax consultants will ensure that the clients’ VAT returns are filed and submitted within the timeframe set by the FTA. The clients put immense faith in JCA’s VAT services as the VAT submissions are made in compliance with FTA regulations. And the approved Tax Agent of JCA is helping the clients on various VAT-related matters.