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Your guide on VAT for designated zones in the UAE
The treatment of different transactions in relation to VAT depends on various factors like the type of goods, the place where the transaction takes place, and the time when the transaction took place. In this article, we shall be discussing the rules and applicability of VAT for designated zones in the UAE. One can always consult the experienced tax consultants in Dubai that are there in the VAT registration UAE for any confusion related to VAT so that they do not face any kind of fines and penalties if ever they go wrong in complying with the guidelines set up by FTA.
What is a designated zone in the UAE? (1)
A designated zone is defined as a VAT free zone and it is considered outside the province of the UAE for VAT treatment purposes. Therefore, the VAT is not levied on any transfer of goods between the designated zones. Special rules are applicable for the transactions that are happening between the designated zones. Not all free zones are considered as the designated zones in the UAE. Only the regions that satisfy the following criteria are termed as designated zones: –
- They must keep strict security measures and custom procedures to help them in controlling the movement of goods and the people.
- Specific internal procedures should also be in place to keep, store, and process goods within the designated zones.
- The administrator of the designated zone must comply with the FTA guidelines set up by the Federal Tax Authority.
Only if the designated zones meet the above said requirements, they can be treated as outside the UAE for VAT purposes.
Application of VAT for designated zones in the UAE for transfer of goods (1)
The VAT applicability on the transfer of goods into a designated fall into 5 major categories. These are discussed below in detail.
- Transfer of goods from outside the UAE
The Federal Tax Authority considers the designated zones as lying outside the UAE when it comes to VAT purposes. Therefore, in line with this consideration, the supply or transfer of goods into the designated zones from outside the UAE is a transaction outside the UAE and no VAT is levied on such transactions.
- Transfer of goods from the UAE mainland
The transfer of goods from the designated zone to the mainland in the UAE is treated at 5% VAT. This is because the FTA does not consider the transfer of own goods from the mainland in the UAE as an export of goods from the UAE. Therefore, standard VAT rates are applied to such goods. Kindly note that the mainland means the place in UAE except the ones that have been identified as designated zones.
- Transfer of goods between designated zones
The transaction of goods between the designated zones will be considered free from VAT if they satisfy the following 2 conditions-
- The goods should not be modified in any way while the transfer is taking place. The goods must not be released into circulation either in part or full.
- The transaction must take place as per the rules laid for custom suspension and must be in accordance with the GCC customs law.
Over and above the conditions that are supposed to be met for a VAT free supply of goods between the designated zones, the FTA may ask the owner of the goods to provide a financial guarantee for the payment of the taxes, which the owner might be liable to pay should the conditions for the movement of goods are not met.
- Services that are rendered within the designated zones
Any kind of services offered inside the designated zones will be considered as the service that has been offered in the UAE and is subject to the standard VAT rate of 5%. The same kind of treatment is applicable for the supply of water or any other form of energy.
- Goods consumed within the designated zones
Any goods inside the designated zone will be considered as imported in the UAE by the owner of the following conditions are satisfied and would be treated at 5% VAT
- The goods have been consumed by the importer unless the goods are incorporated into, attached to, or otherwise form part of or are used in the production of other goods that are located in the designated zone which itself does not get consumed.
- The goods have not been accounted for
For further clarification on specific transactions within the designated zones in the UAE, one must consult the tax consultants in the UAE as they are fully updated with the latest guidelines provided by the FTA.
Declared designated zones in the UAE (2)
In total, there is a total of 22 zones that have been announced as a designated zone in the UAE. Most of these are located in the emirate of Dubai, Abu Dhabi, and Ras Al Khaimah while a few are located inside Fujairah, Ajman and Sharjah as well. For complete list of designated zones in the UAE one can always consult the tax consultants in the UAE who keep themselves updated with the latest rules and regulations in relation to the VAT.
Vat registration UAE can help you in following the guidelines on VAT for designated zones in the UAE
So, if you are a businessman and are looking for starting a business in the UAE, then choosing the mainland jurisdiction, designated zones, or free zones can be a complicated task. As a businessman and investor, you must know the right free zone in order to be sure about the place that suits your needs. This is where VAT registration UAE can help you. Experts will give you a clear picture of the VAT implications for each kind of transaction occurring in the designated zones and will also help you in registering for the VAT, filing VAT returns, and keeping a check on the VAT systems that your company follows. So, get in touch with experts to know full details on applications of VAT for designated zones in the UAE.
Umar Nisar was born and raised in the busy city of Abbottabad. As a journalist, Umar Nisar has contributed to many online publications including PAK Today and the Huffing Post. In regards to academics, Umar Nisar earned a degree in business from the Abbottabad UST, Havelian. Umar Nisar follows the money and covers all aspects of emerging tech here at The Hear Up.
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