A Designated Zone is a VAT-free area under specific conditions in the UAE. It is important to understand the identification of designated zones. The VAT treatment for supplies in Designated Zones varies based on the type of supply.
VAT exemption applies only to the supply of goods under specific conditions, whereas services provided within these zones are subject to VAT. To qualify for VAT exemption on goods in Designated Zones, businesses must meet the conditions for VAT policy in the UAE.
To understand the complexities of Designated Zones, we have provided all the necessary information in this article to help you comprehend the VAT policy and the list of Designated Zones in the UAE. You can successfully establish a company, implement the VAT policy, and get the actual benefit of the Designated Zone.
What Is a Designated Zone?
VAT is applied to the supply of goods and services within the UAE territory. However, certain jurisdictions are excluded from this in the case of goods being supplied. These are identified in a cabinet decision outlined in Article 51 of the UAE Executive Regulation, having unique VAT regulations. These specific jurisdictions are called Designated Zones. These territories are established to offer tax incentives to businesses in the UAE.
How To Identify a Designated Zone?
The Designated Zones are specified in a cabinet decision as listed above. However, to be considered a territory outside the UAE for VAT purposes, the Designated Zones must meet the following criteria:
- The area must be enclosed by a fence.
- The zone must possess its own security measures and customs control unit to oversee the movement of people and goods entering and exiting the area.
- Clear regulations must be established for storing, retrieving, and processing goods within the zone.
The businesses operating in the zones must comply with all regulations set by the FTA. Companies conducting business in Designated Zones must meet strict eligibility criteria and maintain comprehensive records for their compliance with the above conditions.
What Is VAT Policy In Designated Zones?
VAT has been introduced across the UAE, acting as a standard tax on goods and services. However, a special case exists for the Designated Zones, where different VAT rules apply to the movement of goods for VAT.
On the other hand, mainland and Free Zone jurisdictions are liable under VAT for the transfer of goods. This makes it more challenging to monitor and control the movement of goods between these areas for VAT exemption.
Additionally, depending on the origin and destination of the supply, certain types of transactions made to or from Designated Zones may still apply VAT. The table below explains the VAT policy within Designated Zones.
| Type of Supplies | From | To | Taxability |
| Goods | Designated Zone | Designated Zone | Non-Taxable |
| Goods | Designated Zone | Mainland | Taxable at 5% VAT |
| Goods | Mainland | Designated Zone | Taxable at 5% VAT |
| Goods | Designated Zone | Overseas/GCC countries | Non-Taxable |
| Goods | Overseas/GCC countries | Designated Zone | Non-Taxable |
In this context, “mainland” refers to any location within the UAE except for the Designated Zones. As indicated in the above table, the transfer of goods from one Designated Zone to another will be exempt from taxation only if the conditions outlined in the UAE Executive Regulations are fulfilled.
List Of Designated Zones in the UAE:
Here is the complete list of Designated Zones in the UAE:
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 Can We Help You?
If you are interested in setting up your business in the Designated Zones in the UAE, you need to understand the above conditions and meet the VAT regulations of the UAE authorities. You do not need to get entangled with the complexities of Designated Zones; you can go through the whole process with the proper guidance of expert consultants in the UAE.
Now Consultant has been a prominent business setup and tax firm in the UAE for the past decade. We help entrepreneurs in establishing a strong presence in the UAE’s growing economy, especially in Designated Zones.
Our experts will guide you through every step of the process, from business registration and providing insights into UAE Designated Zones to securing approvals from relevant authorities.
FAQs:
Are all Free Zones Designated Zones in the UAE?
No, not all free zones are considered Designated Zones in the UAE. Only specific Free Zones are identified in a cabinet decision outlined in Article 51 of the UAE Executive Regulation, having unique VAT regulations.
