VAT DESIGNATED ZONE IN UAE

VAT DESIGNATED ZONE IN UAE

According to the Executive regulations of the tax law, a designated Zone is a specific fenced geographic area and has security measures and Customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area. 

Additionally, a designated zone shall have internal procedures regarding the method of keeping, storing and processing of goods and the operator of the designated zone complies with the procedures set by the Federal Tax Authority (FTA).

For businesses established and operating in free zones that do qualify as designated zones, the applicability of the VAT regime is summarized below.

Tax Registration

In light of the specification under paragraph 9 of article 51 of the Decision, it is fair to say that businesses will have to register with the Federal Tax Authority if they reach the turnover threshold of Dh375,000 and may do so voluntarily if their turnover is Dh187,500.

Taxable Supplies

The supply of goods and services in the UAE mainland by designated zone businesses is not contemplated by the Decision and the Tax Law, for the simple reason that free zones companies are generally restricted to do business outside of the free zone areas. All other main situations would seem to work as follows:

• Transfer or supply of goods from the UAE mainland into the designated zone will not be considered as an export of goods. Therefore the supplier will charge VAT to the designated zone recipient of goods, subject to applicable exemption or rate (5 or 0 per cent).

• Supply of goods from abroad into the designated zone will not be considered import of goods in the UAE. Therefore the invoice received will only reflect any VAT if and how applicable to the foreign supplier, without triggering any reverse charge requirement.

• Supply of goods among businesses in designated zones will not be subject to VAT, on condition that the goods are kept in their original status during the transfer and the transfer is made in compliance with applicable customs rules.

• Supplies of goods and services made by designated zones’ businesses abroad remain VAT exempt.

• Supplies of services made within a designated zone will be considered as being made in the UAE. Therefore, such supplies would seem to trigger VAT, subject to applicable exemption or rate (5 or 0 per cent), although this scenario is not clear.

Overall, there appears to be limited benefits for free zones from qualifying as designated zones.  Here's the complete list of Designated Zones as per the Annex to the Cabinet Decision No (59) of 2017 No. Designated Zones.

Abu Dhabi

1. Free Trade Zone of Khalifa Port

2. Abu Dhabi Airport Free Zone

3. Khalifa Industrial Zone

Dubai

4. Jebel Ali Free Zone (North-South)

5. Dubai Cars and Automotive Zone (DUCAMZ)

6. Dubai Textile City

7. Free Zone Area in Al Quoz

8. Free Zone Area in Al Qusais

9. Dubai Aviation City

10. Dubai Airport Free Zone

Sharjah

11. Hamriyah Free Zone

12. Sharjah Airport International Free Zone

Ajman

13. Ajman Free Zone

No. Designated Zones (Umm Al Quwain)

14. Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port

15. Umm Al Quwain Free Trade Zone on Shaikh Mohammad Bin Zayed Road

Ras Al Khaimah

16. RAK Free Trade Zone

17. RAK Maritime City Free Zone

18. RAK Airport Free Zone

Fujairah

19. Fujairah Free Zone

20. FOIZ (Fujairah Oil Industry Zone)

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Posted in: Taxation