Any Designated Zone is an area that has been marked as such by the Cabinet and also one that adheres to all the terms and conditions that have been laid down in the UAE Executive Regulation laws. To put it simply, designated zones are those zones free from VAT and are outside the purview of the State of UAE for VAT purposes. As a result, transfer of goods between designated zones will not be subjected to levies of VAT.
Categories of Supplies in UAE Designated Zones
Supplies may be categorized into the following segments for designated zones in the UAE:
- Supply of goods from one designated zone to another.
- Supply of goods to the mainland from designated zones.
- Supply of goods to the designated zones from the mainland.
- Supply of goods to overseas or GCC countries from designated zones.
- Supplies of goods to designated zones from GCC or foreign countries.
- Supplies of services within these designated zones themselves.
- Supplies of services including energy, water and self-consumption of specific goods in these zones among other exceptions.
VAT Imposed on Supply of Goods for Designated Zones
The designated zones are perceived to be outside the UAE for imposition of VAT which will not be levied on the same. However, some particular supplies will still be taxed at 5% under VAT. This is because tax-free supplies have to fulfill particular conditions including the type, place of supply and so on. Here’s looking at a few key aspects:
- Goods from one designated zone to another- Not taxable
- Goods from designated zone to mainland- 5% VAT
- Goods from mainland to designated zone- 5% VAT
- Goods from designated zone to foreign or GCC countries- Not taxable
- Goods from foreign or GCC countries to designated zone- Not taxable
Some Major Conditions on Supply between Designated Zones
Supplies from one designated zone to another will be free from VAT upon adherence to these conditions:
- There is no release of the goods during any transfer between designated zones.
- They are not altered or used during the transfer between the zones.
- The transfer is made as per the regulations for customs suspension based on the GCC Common Customs Law.
The owner of the goods may be asked to offer a financial guarantee for tax payments by the authority of the designated zone. This becomes his/her liability in case conditions are not adhered to, for movement of the goods in question.
VAT on Services and other Aspects in Designated Zones
Some key points should be kept in mind for services and other supplies in designated zones:
- VAT is charged at 5% for services supplied to the designated zone from the mainland or within the zone itself.
- VAT is charged at 5% for energy and water supplied to designated zones.
- If supply of goods is used by the third person or owner within a designated zone, then the supply place will be considered as the State of UAE. Hence, goods which are self consumed will be subjected to 5% as VAT.
- Incorporation of goods into other products.
- Goods are attached to others.
- Usage in such a manner that goods become a part of other finished goods.
- Goods are used in the sale/production of other goods situated in the same designated zones.
Designated Zones in UAE
- Abu Dhabi- Free Trade Zone (Khalifa Port), Airport Free Zone, Khalifa Industrial Zone
- Dubai- Jebel Ali Free Zone (North-South), Dubai Textile City, Dubai Cars and Automotive Zone, Dubai Aviation City, Free Zone Area at Al Quoz, Free Zone Area at Al Qusais, Dubai Airport Free Zone
- Sharjah- Hamriyah Free Zone, Sharjah Airport International Free Zone
- Ajman- Ajman Free Zone
- Ras Al Khaimah- RAK Free Trade Zone, RAK Airport Free Zone, RAK Maritime City Free Zone
- Umm Al Quwain- Umm Al Quwain Free Trade Zone at Ahmed Bin Rashid Port, Umm Al Quwain Free Trade Zone at Sheikh Mohammed Bin Zayed Road
- Fujairah- Fujairah Oil Industry Zone (FOIZ), Fujairah Free Zone
GCC Filings will help you understand more about VAT in designated zones and non-designated zones alike. It will help you out with accounting, VAT registration in UAE, returns, filing, auditing, company incorporation UAE and a lot more.