A designated free zone in the UAE refers to certain areas that are exempted from the general VAT rules of the UAE territory for taxation purposes. As per the UAE VAT law, only the free zones that are listed in a cabinet decision notification are treated as ‘designated zones’. Inside these designated zones, some VAT rules are amended to provide certain benefits to the businesses operating within them. This article provides a comprehensive list of all the designated free zones in the UAE along with details of the applicable VAT treatments.
What are Designated Free Zones in UAE?
Designated zones are specific free zones within the UAE borders that have special VAT regulations applied to them. As per the UAE VAT law, a designated zone is treated similar to an area outside the UAE territory for VAT purposes. Some key characteristics of designated zones include:
- They are areas separated by fences with dedicated security and customs control.
- Strict regulations govern the storage, retrieval and processing of goods within.
- Businesses have to comply with FTA rules and maintain robust records.
- Unlike normal free zones, designated zones are excluded from the general scope and implementation of VAT in the UAE. This means certain supplies involving designated zones may be out of VAT or subject to different VAT rates.
List of Designated Free Zones in UAE
In accordance with Cabinet Decision No. (59) of 2017 on Designated Zones, the following fifteen free zones as designated zones in UAE:[1]
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
- Ajman Free Zone
- 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 Free Trade Zone
- RAK Maritime City Free Zone
- RAK Airport Free Zone
Fujairah
- Fujairah Free Zone
- Fujairah Oil Industry Zone (FOIZ)
VAT Implications for Supplies within Designated Zones
The VAT treatment for supplies occurring within or involving designated free zones is outlined below:
l Outward supplies
The VAT treatment for outward supply by a taxable person that is registered in a Designated Zone is:
| Nature of Supply | Origin of Supply | VAT Applicability |
| Supply of Service | Between Designated Zones | Standard VAT Rate of 5% |
| Supply of Service | From Designated Zone to Mainland UAE | Standard VAT Rate of 5% |
| Supply of Service | From Designated Zone to Outside UAE | May be eligible for zero-rating if export conditions are met |
| Supply of Goods | Between Designated Zones | Out of VAT scope if customs rules followed |
| Supply of Goods | From Designated Zone to Mainland UAE | Recipient accounts for 5% VAT under reverse charge if registered |
| Supply of Goods | From Designated Zone to Outside UAE | Considered export, out of VAT scope |
l Inward supplies
The VAT treatment for inward supply by a taxable person that is registered in a Designated Zone is:
| Nature of Supply | Origin of Supply | VAT Applicability |
| Supply of Service | Between Designated Zones | Standard VAT Rate of 5% |
| Supply of Service | From Mainland UAE | Standard VAT Rate of 5% |
| Supply of Service | From Outside UAE | Recipient accounts for 5% output VAT under reverse charge if registered |
| Supply of Goods | Between Designated Zones | Outside VAT scope if customs rules followed |
| Supply of Goods | From Mainland UAE | Standard VAT Rate of 5% |
| Supply of Goods | From Outside UAE | Considered import but out of VAT scope since DZ treated as outside UAE |
FAQs
Q. Can a company form a VAT group including members in designated and mainland zones?
A. Yes, under certain conditions a VAT group can be formed including members situated across designated and mainland zones of the UAE. But import VAT may apply on transfer of goods between group members.
Q. Is import VAT applicable if goods are first sold in a designated zone and then imported into mainland?
A. Yes, import VAT would apply on goods imported into mainland UAE from a designated zone, even if the goods were previously sold within the designated zone. However, the importer can recover the import VAT paid against their output tax liabilities
Q. What are the VAT compliance requirements in designated zones?
A. Businesses must maintain proper records of supplies and register for VAT if exceeding mandatory threshold, failing which can attract penalties. The mandatory registration threshold is AED 375,000.
Conclusion
In conclusion, designated free zones in UAE play an important role in the VAT framework of UAE. Proper understanding of their VAT treatments provides businesses certainty to efficiently structure their supply chain involving these zones. By registering with an experienced VAT consultant like VAT Registration UAE, companies can remain compliant with evolving VAT regulations in the UAE. With expert guidance, businesses can leverage the VAT benefits accorded to designated zones.
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