VAT Treatment on Supply of Goods Into Designated Zones in UAE

The UAE has more than 40 free zones but the Federal Tax Authority (FTA) has categorised some of them as Designated Zone for Value Added Tax (VAT) purposes. Only those free zones listed in Cabinet Decision No. (59) of 2017 will be regarded as Designated Zones for which special VAT treatments apply. The supply of goods into Designated Zones will be subject to special treatment as per the UAE VAT Law. Businesses operating in Designated Zones need to consider such VAT rules, for which tax agents in Dubai can assist.

Designated Zones are treated as outside the State and outside the implementing States as per the regulations of VAT in the UAE. Even though Designated Zones are considered outside the State (UAE), the movement of goods from one place in the State to the Designated Zones will not be treated as an export of goods. Since special rules apply, entities can get the help of VAT consultants in Dubai to know about the VAT ratings on the supply of goods into Designated Zones.

This article will discuss key scenarios such as VAT on the movement of goods between two Designated Zones, VAT on goods supplied from the UAE Mainland into a Designated Zone and VAT on goods supplied from outside the UAE State into a Designated Zone. Read ahead to know further:

What are Designated Zones? 

As per the FTA, a free zone meeting the following conditions is defined as a Designated Zone in the UAE:

• A Designated Zone is subject to strict control criteria
• It is required to have Customs procedures to control the movement of goods into and out of the designated zone
• A Designated Zone must have security procedures in place to control the movement of goods and people to and from the designated zone
• A Designated Zone will be considered as being outside the territory of the UAE for VAT purposes for certain supplies of goods

VAT on Goods purchased from Designated Zone in UAE 

As per the UAE VAT regulations, the supply of goods between Designated Zones will not attract any VAT. For example, a company named ABC Traders in Jebel Ali Free Zone purchased some products from PQR Traders, which operates from the Dubai Airport Free Zone. Here, both Jebel Ali Free Zone and Dubai Airport Free Zone are listed as Designated Zones. Therefore, the supply of goods from ABC Traders to PQR Traders will be VAT-free since the supply happened between Designated Zones. Tax agents in Dubai can help businesses to assess their VAT liability.

Goods supplied from Mainland to the Designated Zone 

Goods supplied from a place within the State to a Designated Zone will not be considered an export of goods. On account of this VAT rule, the standard VAT rate is applicable on such a purchase made by an entity located within a Designated Zone. The input VAT paid by the company on such a purchase can be recovered by adjusting with output VAT liabilities.

For example, a company named XYZ Traders, operating in Jebel Ali Free Zone purchases goods from LMN Traders, located on Dubai mainland. In this case, the supply of goods from LMN Traders to XYZ Traders will attract VAT at 5% as the transfer of goods is from the Mainland to a Designated Zone. The standard applies because the supply of goods from the mainland to the Designated Zone is not considered exports. Consult with VAT consultants in Dubai to accurately assess your VAT rating.

Goods supplied from outside the UAE State into Designated Zone 

Supply of goods from outside the UAE to a Designated Zone will not be treated as imports and hence is outside the scope of VAT. For example, BCD Traders operating in Jebel Ali Free Zone purchased goods from XXY Traders, located in India. Since Jebel Ali Free Zone is a Designated Zone and the purchase is made from outside the State, the transaction is outside the scope of VAT. Businesses carrying out such transactions can consult with tax agents in Dubai to initiate further actions.

Seek Advice from FTA-Approved Tax Agents in Dubai, UAE 

Tax agents in Dubai recommend businesses go through the points illustrated in this article before conducting transactions. Businesses operating in the UAE should make a note of two important points discussed here. Firstly, the purchase of goods from the mainland is not considered exports, meaning such transactions will attract a VAT of 5%. Secondly, the purchase of goods from outside the state is not considered imports and will be out of the scope of UAE VAT. These two points must be in mind before filing VAT returns, for which VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA) can help you.

JCA is one of the leading tax agents in Dubai registered with the FTA. We provide bespoke VAT consultancy services in Dubai to all kinds of businesses. Our FTA-approved tax agents are highly qualified and well-versed in the UAE Tax Laws. We understand that every business is different from the other. Hence, each of our services is tailored as per your specific business requirements.