Do you want to delve deep into the question “ How VAT works for Designated Zones”? Designated Zones have also some other tax benefits and minimal legal and documentation processes. In essence, these special zones cater to a hassle-free business setup. Let’s go further deep into Designated Zones through this article.

What are designated zones?

A UAE VAT Designated Zone is a special area treated a being outside the UAE for Value Added Tax related purposes by the Cabinet Decision. These special zones offer tax exemptions for entrepreneurs on a certain set of criteria. These criteria include:
  •  Designated Zones are specified fenced geographical which has strict security measures, custom controls, and monitoring in the boundaries for the displacement of individuals and goods to other areas.
  • The designated zones possess internal methodology in activities like storage, keeping, and processing of goods.
  • Administrators of a Designated Zone must comply with the requirements set by the Federal Tax Authority (FTA).

List of designated zones in the UAE

Cabinet decision No. 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
  • 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 Mohammed 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)

How is VAT policy regulated in designated zones?

Value Added Tax is a customary flat tax levied on all goods and services exchanged within the territory of the UAE. It was introduced on 1st January 2018. It is added to every stage of a product where value is added. However, there is an exception in the case of UAE VAT-designated zones. One reason behind this is that they are a closed region unlike mainlands and free zones. Exchange of goods is observed by the jurisdiction as they are a fenced region.

How come VAT policies are regulated for designated zones?

  • There are several conditions in different designated zones. But, here is a general overview of how the VAT policy is regulated in designated zones. These criteria do not apply to all services.
  • Any goods that are transferred between and within designated zones are free from VAT.
  • Export and import of goods between a designated zone and a company overseas are also free from VAT. Transfer of goods from mainland/free zones to designated zones and vice versa are subject to 5% VAT.

When does an investor have to apply for VAT?

Mandatory registration:
  1.  If taxable supplies exceed AED 375,000 during the last 12 month period, or
  2. If estimated taxable supplies are more than AED 375,000 in the next 30 days.
Voluntary registration:
A business may apply to register for VAT if they do not meet the mandatory registration criteria as above and:
  1. If taxable supplies or taxable expenditure in the previous 12 months exceeds AED 187,500, or
  2. Estimated taxable supplies or taxable expenditure will exceed AED 187,500 in the next 30 days.

To know more

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