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:
If taxable supplies exceed AED 375,000 during the last 12 month period, or
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:
If taxable supplies or taxable expenditure in the previous 12 months exceeds AED 187,500, or
Estimated taxable supplies or taxable expenditure will exceed AED 187,500 in the next 30 days.
To know more
This is only a small tidbit of information for you. There is much more that you want to know. You can contact us for a free consultation. We are always happy to help you!
