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UAE-VAT-designated-zones

Wondering how VAT policies work in designated zones in the UAE? Read to learn about everything related to VAT designated zones.

All you need to know about designated zones in the UAE

Wondering how the VAT regulations work for designated zones in the UAE? This blog will inform you about everything you need to know about it.

What are designated zones?

A UAE VAT Designated Zone is an area assigned by the Cabinet Decision to be considered as outside the UAE for Value Added Tax (VAT) purposes. These territories are designated to offer tax incentives to businesses. Moreover, in order for this to happen, a number of conditions need to be met. These conditions include:

Designated Zones are required to be fenced off. It should be done so with safety measures as well as customs controls in place to screen entry and exit of people and goods transferred to and from the zone.

The zone must have internal methodology in regards to storage, keeping, and processing of goods.

Administrators of a Designated Zone must comply with the requirements set by the Federal Tax Authority (FTA).

How is VAT policy regulated in designated zones?

Value Added Tax, introduced on 1st January 2018, has been implemented as a general consumption tax of goods and services. This applies to all supplies which are exchanged within the territorial area of the UAE.

However, there is an exception to this rule when it comes to the UAE VAT designated zones. One of the reasons is because supplies of goods transferred to or from a designated zone can be observed in these jurisdictions since they are gated. On the other hand, other jurisdictions such as mainland and free zones are open. Hence, it is more complex to observe and regulate the transfer of goods between jurisdictions for VAT purposes.

How VAT policies are regulated in the UAE for designated zones

The above rules, however, are not applicable to services. In this case, regardless of where the service is provided — UAE mainland/free zone or designated zones — the process is taxable for VAT by 5%. This is because services cannot be regulated. Therefore, by default, it will be subject to 5% VAT. Moreover, the place of supply for services is considered to be within the state.

For instance, an investor wants to provide professional services from one VAT-free zone to another. The businessowner will be required to pay 5% VAT. In contrast, if the investor wants to provide professional services overseas, he/she will have to apply for 0-rated VAT. However, this isn’t applicable for commercial activities.

When does an investor have to apply for VAT?

Any individual (natural or legal) carrying on a business activity in the UAE and making taxable supplies should register for VAT based on the following threshold:

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.

List of designated zones in the UAE

According to the Cabinet Decision No. 59, the following free zones are treated as designated zones in the UAE. Hence, these free zones conform to special rules and regulations.

Set up your free zone company with Shuraa Business Setup now

If you’re interested in setting up your designated free zone company in the UAE, look no further. Shuraa will help you get started with your company and ensure that the entire process runs smoothly.

Shuraa has been one of the leading business setup companies in the UAE for over 20 years. Furthermore, our goal is to help entrepreneurs build a foundation in the UAE’s thriving economy, from start to finish.

Our expert consultants will guide you through the entire process — from registering your business and helping you understand UAE VAT designated zones, all the way to the process of obtaining approvals from relevant authorities.

To get in touch with our expert business consultants, call us on +97144081900. Send a WhatsApp message for a chat query on +971507775554. You can also email us at info@shuraa.com. You can also get in touch with our international tax experts, visit https://bit.ly/2Wphtcq.



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