Designated Zones in UAE for VAT Exemption Revealed

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The Ministry of Finance has clarified the details of Cabinet Decision No. (59) of 2017 on Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax, explaining that Designated Zones are the areas that meet the conditions stated in the Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No. (8) of 2017 on Value Added Tax.

The Ministry clarified that according to the Law and relevant Cabinet Decisions, a “Designated Zone” is a specific fenced geographic area that has security measures and Customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area, and are listed in a Cabinet Decision as Designated Zones, which differ from free zones in terms of definition and conditions.

Although Designated Zones are part of the UAE territory, the Ministry continued, for VAT purposes, they are treated as being outside the UAE. VAT is imposed on goods and services supplied or imported in the UAE. This means that if a supply is treated as not taking place in the UAE, then UAE VAT should not be charged, with some exceptions noted.

The Ministry further clarified that the place of supply is generally determined by looking at the location of the goods, activities or the parties to a transaction. Therefore, if the place of supply is in a Designated Zone (which is treated as being outside the UAE for VAT purposes), the supply may be outside the scope of VAT. The VAT Executive Regulation provides that certain types of supplies that take place in the Designated Zones should be treated as if they actually take place in the UAE and are therefore subject to tax, that includes:

  • any services provided
  • water and all forms of energy
  • goods sold for use or consumption

Goods that arrive into a Designated Zone from outside the UAE are not treated as imported into the UAE. Therefore, no VAT is charged on such arrival of the goods. That said, a transfer or sale of goods into a Designated Zone from a place in the UAE which is not a Designated Zone is not an export for VAT purposes, and therefore will not give rise to zero-rated VAT treatment.

As for the transfer of Goods between Designated Zones, the Ministry asserted that it will be subject to VAT exemption if both of the following conditions are met:

  • the goods, or parts of the goods, are not released, used or altered during the transfer between the Designated Zones; and
  • the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law.

Where goods are moved between Designated Zones, the FTA may request the owner of the goods to provide a guarantee in respect of the VAT in case the conditions for the movement of goods are not met. Meanwhile, the sale of goods between Designated Zones will be treated as outside the scope of the UAE VAT, subject to the conditions discussed earlier in this summary (that is, the goods are not for consumption).

Designated Zones in the UAE:

As per Cabinet Decision No. (59) of 2017 on Designated Zones for Federal Decree Law No. (8) of 2017 on Value Added Tax (VAT), the following areas are Designated Zones:

Designated Zones in Abu Dhabi:

Free Trade Zone of Khalifa Port
Abu Dhabi Airport Free Zone
Khalifa Industrial Zone

Designated Zones in 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

Designated Zones in Sharjah:

Hamriyah Free Zone
Sharjah Airport International Free Zone

Designated Zones in Ajman:

Ajman Free Zone

Designated Zones in Umm Al Quwain

Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
Umm Al Quwain Free Trade Zone on Sheikh Mohamed Bin Zayed Road

Designated Zones in Ras Al Khaimah:

RAK Free Trade Zone
RAK Maritime City Free Zone
RAK Airport Free Zone

Designated Zones (Fujairah)

Fujairah Free Zone
FOIZ (Fujairah Oil Industry Zone)

To read the full text of the Cabinet Decisions, please visit the official website of the Federal Tax Authority www.tax.gov.ae.

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