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