The VAT in UAE was introduced from 1 January 2019 and applies to those supplies of goods and services which take place within the territorial boundaries of the UAE. As in the case of goods and services supplied within free zones in the UAE, the rules of VAT are applicable to undergo a certain change.
Free zones are defined as those areas which are specifically designed to promote international businesses in the UAE by providing attractive incentives to foreign investors and businesses. In the UAE, there are currently more than 37 Free Zones such as:
- Jebel Ali Free Zone
- Dubai Airport Free Zone
- Dubai Cars and Automotive Zone and many more
As per UAE VAT law and Executive Regulations, not all Free zones are ‘VAT Free Zones’ and only those listed in a Cabinet Decision are eligible for the special VAT treatment. These Free Zones are referred to as Designated Zones for VAT purposes, according to Cabinet Decision No. 59 of 2017.
Few supplies occurring within the Designated Zones will not invite the standard rate of VAT i.e. 5% under circumstances mentioned in VAT regulations. This is only in the case of a supply of goods. However, suppliers of services in the designated zone will be subjected to the usual VAT rate at 5%. It’s important to understand the conditions which businesses need to follow for the VAT-free supply of goods between the Designated Zones as prescribed by UAE VAT Executive Regulations.
Following are the conditions which are mandatory to consider any UAE free zone as a Designated Zone to
- It should be enclosed within a specific fenced geographical area.
- It should have security measures and customs controls in place for monitoring the entry and exit of individuals and goods to and from the area.
- There should be laid out internal procedures related to the method of keeping, storing and processing goods within the Designated Zone.
- The operator of the Designated Zone should show support or comply with the procedures laid down by the Federal Tax Authority (FTA) of UAE.
If any free zone no longer fulfills the above conditions, it cannot be then treated as a designated zone. It will be considered and treated as a part of the UAE And general VAT rules will be applicable to such free zones.
Below are few examples of Free zones which are designated zones:
- Jebel Ali Free Zone (North-South)
- Dubai Cars and Automotive Zone (DUCAMZ)
- Free Zone Area in Al Quoz
- Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
- FOIZ (Fujairah Oil Industry Zone)
- Khalifa Industrial Zone
As per the registration for VAT is considered, these businesses within the Designated Zone have to register, report and account for VAT as per the UAE laws. In case of failing to register for VAT within the due date, a penalty of AED 20,000/- will be levied as per the UAE Federal Cabinet Decision No.40.
Consult Shuraa Tax Consultants and Accountants to get assured and accurate help on the VAT laws related to the Free Zones in the UAE. We are a group of FTA approved tax agents in Dubai with a goal to provide accurate services of VAT in UAE (VAT registration and implementation, Tax compliance & VAT Return Filing). Contact us to get complete assistance and guidance on the VAT registration in UAE. All you need to do is reach out to us at info@shuraatax.com or call us at +971 508912062.
