A Guide to VAT on Goods Supplied in a Designated Zone & Connected Shipping Services
The UAE has more than 40 free zones, and the Federal Tax Authority (FTA) has categorised some of them as Designated Zones for the purposes of Value Added Tax (VAT). The FTA considers the supply of goods within a Designated Zone is outside the scope of VAT in the UAE unless the goods are supplied to be consumed. The FTA considers a Designated Zone outside the UAE for VAT purposes. Taxable persons need to consider FTA’s take on VAT on Designated Zones while filing VAT returns, for which they can seek the help of VAT consultants in Dubai.
If goods are supplied in a Designated Zone for consumption, the place of supply will be in the UAE unless a specific exclusion applies. In such cases, double taxation will be applied. This means the place of supply of shipping of delivery services will be regarded as taking place in the UAE. This requires the non-resident suppliers to register for VAT in the UAE. However, the FTA amended such requirements by issuing the Cabinet Decision No. 88 of 2021. As per the new changes, the place of supply will be considered outside the UAE under certain conditions. Read ahead to know such conditions:
Definition of Designated Zones in the UAE
For a free zone to be treated as a Designated Zone, the following criteria have to be met:
- The free zone must be a specific fenced geographic area
- There must be security measures, and Customs controls to monitor the entry and exit of individuals and movement of goods to and from the Designated Zone
- There must be specific procedures to keep, store and process goods within the zone
- The free zone operator must abide by the FTA procedures and requirements
Conditions for Treating Goods Outside the Scope of VAT
The supplier of the goods must ensure to treat the supply accurately for the purposes of VAT in the UAE. The supplier should not treat supplies of goods as outside the scope of VAT unless one of the following conditions apply:
1. Goods incorporated/attached to/become part of/ are used in the production of other goods
Goods that are incorporated/attached to/become part of/ are used in the production of other goods will be treated outside the scope of VAT in Designated Zones in the UAE. In these cases, the supplier should ensure that there is a direct connection between the purchased goods and the resulting goods after production. Moreover, the resulting goods should not be supplied to be consumed. If these two conditions are met, the place of supply will be considered as outside the UAE, and the supply will be outside the scope of VAT.
2. Goods delivered outside the UAE
For this exclusion to happen, the goods must be moved from the Designated Zone to be delivered outside the UAE. The supplier should obtain and retain Customs papers evidencing the movement of the goods from the designated zone. Furthermore, the supplier should retain commercial or official evidence to prove that the goods will be delivered outside the UAE.
3. Goods Delivered in the UAE
The following conditions need to be met for this condition to apply:
- The goods must be transferred from a Designated Zone to be delivered inside the UAE
- 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
VAT on Shipping and Delivery Services
The previous clauses on VAT regulations (Article 51) treat the supply of goods or services in the Designated Zones as inside the UAE and, therefore, within the scope of VAT. However, the new amendment has added an exception to this rule. Yet, the specific condition has to be met to apply this exception. VAT consultants in Dubai can help taxable persons assess the VAT treatment. The following conditions have to be met for the exceptions to apply:
- The shipping or delivery service is supplied by the same supplier of the goods;
- The supplier of such goods is a non-resident and not registered for VAT in the UAE;
- The goods are sold through an electronic platform
- The supplier of the goods is not the person who owns the electronic platform
Seek Help from VAT Consultants in Dubai, UAE
The UAE recently amended the previous rules governing the VAT treatment of goods or services in the Designated Zones. The Cabinet Decision No. 88 of 2021 amends the VAT rules regarding Designated Zones effective from 30th October 2021. However, the taxable person can assess their VAT obligations with the help of VAT consultants in Dubai, such as Jitendra Chartered Accountants (JCA).
JCA has a team of highly qualified and FTA approved tax agents in Dubai who can simplify the tax procedures for the companies. JCA can help businesses with requirements such as VAT accounting, VAT filing, VAT refunds, VAT return filing etc. Avail of JCA’s VAT consultancy services in Dubai to ensure compliance with the FTA.