In the UAE territory, Value Added Tax (VAT) is levied on the supply of goods and services. However, certain free zones specified by the UAE Cabinet are exempt from VAT. These zones are known as Designated Zones and have been listed primarily to boost international business in the country. Even if they are located inside the UAE territory, they are treated as being outside the territory for VAT.
To be considered as a Designated Zone, some conditions specified in the Executive Regulation need to be fulfilled.
These conditions include:
- Designated Zone must be within a fenced geographic area;
- It must have security and Customs procedures in place to regulate the movement of goods and people into and out of the Designated Zone;
- It must have internal procedures in place for keeping, storing, and processing goods within the zone;
- Businesses operational in Designated Zones are subject to strict control criteria and must keep thorough records;
- An operator of a Designated Zone must comply with the regulations stated by the Federal Tax Authority (FTA).
Supplies of goods between Designated Zones do not attract VAT at 5%. While special guidelines apply to supplies made within Designated Zones, businesses set up in these zones would still need to register for VAT, given the criteria for registration are met.
List of Designated Zones in UAE
Below mentioned are a few free zones that are listed as Designated Zones according to the Cabinet Decision No. 59 of 2017 on Designated Zones for value-added tax purposes.
- Abu Dhabi
- Free Trade Zone of Khalifa Port
- Abu Dhabi Airport Free Zone
- Khalifa Industrial Zone
- Ajman Free Zone
- Fujairah Free Zone
- Fujairah Oil Industry Zone (FOIZ)
- Ras Al Khaimah
- RAK Free Trade Zone
- RAK Maritime City Free Zone
- RAK Airport Free Zone
- Hamriyah Free Zone
- Sharjah Airport International Free Zone
- 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
General Rules for Designated Zones in UAE
Supply of services
For the supply of services, almost all services are subject to VAT at the standard rate. No special regulations exist to allow concessional treatment in Designated Zones. This means that if a supply of service is made in a Designated Zone, the supply would still be considered to take place in the UAE. However, if a service is exported to an individual who is a resident outside the GCC states, then the service may be considered as a zero-rated supply.
Supply of goods within a Designated Zone
Goods supplied within a Designated Zone (meaning, both the consumer and supplier are in the Designated Zone) would be treated as out of scope of VAT. However, the supply must be consumed within the Designated Zone. If the place of supply being consumed is the mainland, standard VAT rules will be applicable.
Transfer of goods to a Designated Zone
Following are some general rules that apply to the transfer of goods into a Designated Zone:
- From outside the UAE: This would be an exemption to VAT since the supply would be deemed as being made from outside the UAE to outside the UAE.
- From mainland UAE: This would not be considered as an export from UAE. It would be deemed as a local supply and would be taxed accordingly.
- Transfer of goods amongst Designated Zones: This would be exempted from VAT, provided the goods are not released into circulation, used, or modified in any way during the transfer, and the transfer is made in compliance with the regulations for Customs suspension stated by GCC Common Customs Law.
Import of goods from Designated Zones
The movement of goods from a Designated Zone to the mainland UAE would be treated as an import of goods into the UAE and would be taxed as an import.
How Can Hexagon Advisory Help?
Are you looking to set up a designated free zone company in the UAE? Without any professional help, VAT rules for designated zones can seem complex. For new businesses, it is critical to be fully aware of such rules and be in a position to comply with them.
Hexagon Advisory has years of experience in company setup, tax advisory, and accounting & bookkeeping services. We can help you enjoy huge business and tax benefits offered by designated zones in the UAE. Get in touch with us to know more!