List of designated zones in UAE
The UAE has announced a list of designated zones where special VAT rules apply. In these designated zones, VAT is treated differently depending on the type of business.
What is a Designated Zone?
Designated zones are special areas with unique VAT rules. The most important rule is that, for certain transactions, no VAT needs to be charged. This usually applies to trading goods within these zones. These specific transactions are not subject to VAT.
VAT is a tax on goods and services in the UAE. But some areas, called free zones, are not included in the UAE territory for VAT. However, not all free zones get this special treatment. Only certain free zones, named in a government decision, have unique rules about VAT. These special free zones are called Designated Zones.
A designated zone in the UAE is considered to be outside the UAE territory for VAT purposes. This means that goods and services supplied inside or outside a designated zone are usually free from VAT, with a few exceptions.
How to Identify a Designated Zone?
Not all free zones in the UAE are VAT-free. Normally, free zones must follow the standard VAT rules for goods and services. However, some free zones meet specific criteria outlined in the Federal Decree-Law on VAT and its Executive Regulations to be treated as designated zones.
These designated zones are named in a cabinet decision. Even if a free zone is listed as a designated zone, it must still meet certain conditions to be considered outside UAE territory for VAT purposes:
1. Fenced Area: The zone must be a clearly marked, fenced area.
2. Security and Customs Control: The zone must have its own security measures and a customs control unit to monitor the movement of people and goods in and out of the zone.
3. Regulations for Goods: There must be clear rules for storing, retrieving, and processing goods within the zone.
4. Compliance with FTA Rules: The operator of the zone must follow all the rules and regulations set by the Federal Tax Authority (FTA).
Businesses operating in designated zones must meet strict qualifying criteria and keep detailed records.
List of designated zones in the UAE
Cabinet decision №59 lists the following free zones as designated zones.
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
Dubai
· Jebel Ali Free 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
Sharjah
· Hamriyah Free Zone
· Sharjah Airport International Free Zone
Ajman
Umm Al Quwain
· Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
· Umm Al Quwain Free Trade Zone on Sheikh Monhammed Bin Zayed Road
Ras Al Khaimah
· RAK Maritime City Free Zone
· RAK Airport Free Zone
Fujairah
· Fujairah Free Zone
· Fujairah Oil Industry Zone (FOIZ)
Understanding VAT Rules for Goods and Services in Designated Zones
Understanding VAT rules for designated zones in the UAE is crucial. It’s important to know that not all transactions in a designated zone are exempt from VAT.
Here’s a simple breakdown:
1. Goods Transfer Between Designated Zones: When goods are moved between and within designated zones, they are generally not subject to VAT, provided certain conditions are met.
2. Goods Exportation and Importation: Goods exported from a designated zone to a company overseas or imported into a designated zone from overseas are also not subject to VAT, as long as the right controls, processes, and records are in place.
3. Goods Transfer to Designated Zones: When goods are transferred from the mainland or regular free zones to designated zones, they are subject to the standard 5% VAT as a normal local supply.
4. Goods Transfer from Designated Zones to Mainland/Free Zones: Goods moved from designated zones to the mainland or regular free zones are considered imports and are subject to a 5% VAT under the reverse charge mechanism.
However, these rules do not apply to services. Regardless of whether services are provided in the UAE mainland, regular free zones, or designated zones, they are always subject to a 5% VAT. This is because services cannot be physically regulated like goods, and the place of supply for services is considered to be within the UAE.
Understanding these rules can help businesses manage their VAT obligations effectively in designated zones.
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