Frequently Asked Questions: UAE Designated Zones VAT

What is a Designated zone?

A Designated Zone is an area specified by a Cabinet Decision as being a “Designated Zone” Although an area might be identified as a Designated Zone, it is not automatically treated as being outside the UAE for VAT purposes. o There are several main criteria that must be met in order for a Designated Zone to be treated outside the UAE for VAT purposes. These are as follows: o The Designated Zone must be a specific fenced geographic area. o The Designated Zone must have security measures and Customs controls in place to monitor the entry and exit of individuals and movement of goods to and from the Designated Zone. o The Designated Zone must have internal procedures regarding the method of keeping, storing, and processing of goods within the Designated Zone. o The operator of the Designated Zone must comply with the procedures set out by the FTA. This means that where a Designated Zone has areas that meet the above requirements, and areas that do not meet the requirements, it will be treated as being outside the UAE only to the extent that the requirements are met.

Is it necessary for businesses in Designated Zones to register for VAT in the UAE?

Yes, businesses located in designated zones are required to register for VAT based on the registration threshold.

Does UAE VAT Law have any special provisions regarding Designated Zones?

Yes, Designated Zones are outside the State of UAE for the purposes of VAT, so most transactions conducted by them will have a special VAT treatment.

How will goods transferred from one designated zone to another be taxed?

The movement of goods between Designated Zones will not be subject to VAT.

Are the goods supplied to customers on UAE Mainland taxable?

The supply will be taxable under the Reverse Charge Mechanism. A customer or recipient must pay taxes under the reverse charge mechanism.

Would goods exported outside the UAE be subject to VAT?

VAT won’t be charged since it will be considered zero-rated.

Does the special VAT treatment apply to the supply of services in the Designated Zone?

No. It only applies to the supply of goods. The place of supply of services within a designated zone is considered to be within the State of UAE.

Is VAT applicable to the supply of services within the Designated Zone?

Services provided within the Designated Zone and to the mainland are subject to VAT at 5%. Below is a flowchart that illustrates how to determine the ‘actual’ place of supply of goods and services in a Designated Zone.

How will goods supplied from the UAE mainland to the designated zone be taxed?

VAT will be charged at 5% on such supplies by the Supplier.

Is VAT at 5% required on imports of goods from countries outside the UAE?

No. VAT is not applicable for these imports and they fall outside the scope of UAE VAT.

When purchasing goods from the UAE mainland, can the Designated Zone recover input VAT?

Input VAT can be recovered by Designated Zones if they conform to the general provisions for input VAT recovery.

Do there need to be any conditions to follow in order for goods to move among Designated Zones?

The UAE VAT Executive Regulations have specified the conditions that need to be met by businesses in order to make VAT-free supplies between Designated Zones.