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VAT Guide for Designated Zones

August 09, 2018

Designated Zone businesses are considered to be established ‘onshore’ in the UAE for VAT purposes. This means that they have the same obligations as non-Designated Zone businesses and have to register, report and account for VAT under the normal rules. They can join a tax group (VAT group) provided they meet the required conditions. The VAT Guide for designated zones cover the below points.

Which Free Zones should be considered as Designated Zones? 

Free Zone = Designated Zone, only if

  • Designated Zone is an area specified by a Cabinet Decision as being a “Designated Zone”
           AND
  • Certain tests of fencing, security controls, and custom controls are in place.

Transfers of goods into Designated Zone from outside the UAE: UAE VAT would not be applicable (Outside the scope of UAE VAT). Transfers of goods into Designated Zone from mainland UAE: These supplies are treated as local supplies, it is not considered to be an export of goods from the UAE. Accordingly, the standard rate i.e. 5% would be applicable.

Transfers between Designated Zones: Transfer of goods between two Designated Zones will be treated as outside the scope of VAT, subject to the previous two conditions being met.

Movement of goods from Designated Zones to Mainland: It will be out of scope supply for supplier located in Designated Zone & it will be considered as an import of goods for mainland buyer. Mainland buyer has to book VAT liability on Reverse Charge Mechamism basis.

Consumption or loss of goods into Designated Zone: Goods which are located in a Designated Zone on which the owner has not paid VAT will be treated as imported into the UAE where the goods are consumed by the owner, unless the goods are incorporated into, attached to or otherwise form part of or are used in the production of another good located in a Designated Zone and that other good is not itself consumed; or the goods are unaccounted for.

Supply of Water& Energy from Designated zone to Mainland or within Designated Zone: Standard rate i.e. 5% VAT will be applicable.

Sales/Lease of Real Estate in Designated Zone: Supplies of real estate (Sales/Lease) made within Designated Zones are outside the scope of VAT.  Raw materials purchased within a Designated Zone for the purpose of constructing real estate in the Designated Zone are also outside the scope of VAT.

Services Related to Real Estate in Designated Zone: Supplies of services related to real estate will be taxable at standard rate i.e. 5% even if supplied within a Designated Zone.

Supply of goods within/between Designated Zones

  • The Authority expects that a written statement from the recipient that the goods will not be consumed, should be sufficient to treat such transaction as “Outside the Scope” of VAT.
  • Where goods are moved between Designated Zones, the FTA may require the owner of the goods to provide a financial guarantee for the payment of VAT, which that person may become liable for should the conditions for movement of the goods not be met.
If you require any assistance or have queries related to VAT please contact us.

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