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VAT Designated Zone

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Definition:

A Designated Zone is an area that is specified by the cabinet decision and that meets the conditions prescribed in the UAE Executive Regulation. In other words, the Designated Zone is a VAT-free zone that is considered to be outside the State of UAE for the purpose of VAT. As a result, on any transfer of goods between Designated Zones, VAT will be not be levied

The Consumption of the Goods in the Designated Zones:

Where a supply of goods is made within a designated zone to a person to be consumed by him or another person, then the place of supply shall be the state and it will be treated in the UAE and VAT will be applicable under the normal rules, Unless the Goods are to be incorporated into, attached to or otherwise apart from part of or are used in the production of another good located in the same designated zone itself is not consumed.

Supply of service in the Designated Zones:

The place of supply of services is in the mainland (within the UAE) if, under the normal rules, then the place of supply would be the designated zone. The override to the normal place of supply of services supplied in designated zones reverts to being in the UAE. Such supplies of such services. This means that no special rules exist to allow concessional treatment for the supply of services in designated zones, and they will be taxed according to the regular VAT rules applicable to them.

So, most services will be liable to VAT at the standard rate, as would be the case were they performed within the UAE. Equally, where services are exported (i.e.., made to a person who is resident and located outside the GCC Implementing States), then the services may be zero-rated.

Transfers of goods into a designated zone:

The following general rules apply to the transfer of goods into a designated zone:

  1. Out of scope of UAE VAT, as the supply is moving from outside the UAE to outside the UAE.
  2. Treated as a local movement/supply and taxed as such, and not considered an export from the UAE.
  3. Treated as out of scope of UAE VAT subject to the following two conditions being met:
  4. The goods, either in part or in their entirety are not released into circulation, nor used or altered in any way during the transfer between the Designated zones: and
  5. The transfer for the goods is undertaken in accordance with the rules for customs suspension per the GCC Common Customs Law.

The Announced list of VAT designated zones

Based on the Cabinet Decision No. 59 of 2017 on Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax (VAT):


Designated Zones

Emirate

Zone

Dubai

·        Jebel Ali Zone (North-South)

·        Dubai Cars and Automotive Zone (DUCAMZ)

·        Dubai Textile City

·        Free Zone Area in Al Quoz

·        Free Zone Area in Al Qusais

·        Dubai Aviation City

·        Dubai Airport Free Zone

·        International Humanitarian City – Jebel Ali

Abu Dhabi

·        Free Trade Zone of Khalifa Port

·        Abu Dhabi Airport Free Zone

·        Khalifa Industrial Zone

·        Al-Ain International Airport Free Zone

·        Al Butain International Airport Free Zone

Sharjah

·        Hamriyah Free Zone

·        Sharjah Airport International Free Zone

Ajman

·        Ajman Free Zone

·        Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road.

Umm Al Quwain

·        Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port

·        Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road.

Ras Al Khaimah

·        RAK Port Free Zone

·        RAK Maritime City Free Zone

·        Al Hamra Industrial Zone- Free Zone

·        Al Ghail Industrial Zone – Free zone

·        Al Hulaila Industrial Zone – Free zone

Fujairah

·        Fujairah Free Zone

 


Conclusion:

It’s clear that VAT treatment for supplies related to Designated Zones is different depending on the type of supplies. Firstly, the benefit of VAT exemption is available only for the supply of goods in certain scenarios and the supply of services within the Designated Zone are taxable. Secondly, in order to be eligible for VAT exemption on the supply of goods within the Designated Zones, conditions, as prescribed in UAE Executive Regulations are required to be met. Thus, for businesses, it is important to understand VAT treatment on supplies carried out by them, assesses the impact of VAT on their business and accordingly plan.


Last update: 22nd April 2022


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