With the introduction of VAT in the UAE on January 1, 2018, businesses operating in Free Zones were concerned about the impact of VAT Registration on their operations. As a first step to provide clarity on free trade zones, the UAE VAT Executive Regulations defined Designated Zones and outlined the guidelines to be followed. Subsequently, the UAE cabinet designated certain zones as Designated Zones. This article answers frequently asked questions about Designated Zones to help clarify uncertainties regarding their VAT Registration uae treatment.
FAQs on UAE Free & Designated Zones
Q1: What is a Designated Zone for UAE VAT purposes?
A: A Designated Zone is an area specified by a cabinet decision that meets the conditions in the UAE Executive Regulations. In other words, a Designated Zone is treated as being outside the UAE for VAT Dubai purposes.
Q2: Are all Free Zones considered Designated Zones under UAE VAT?
A: No, only those Free Zones designated as such by the cabinet are Designated Zones. See the list of Designated Zones in the UAE.
Q3: Should businesses in Designated Zones register for VAT?
A: Yes, businesses in Designated Zones must register if they meet the VAT registration threshold.
Q4: Are there special VAT provisions for Designated Zones?
A: Yes, Designated Zones are treated as being outside the UAE for VAT purposes, so most transactions involving them have special VAT Dubai treatments.
Q5: Is VAT applied on goods transferred between Designated Zones?
A: No, VAT does not apply when goods move between Designated Zones.
Q6: Is a supply to a customer outside mainland UAE (e.g. Dubai) taxable?
A: Yes, but under reverse charge, whereby the recipient pays the VAT Dubai.
Q7: Is VAT applied when goods are exported outside the UAE (e.g. to India)?
A: No, such exports are zero-rated.
Q8: Do special provisions apply to services supplied in Designated Zones?
A: No, only to goods. Services supplied in Designated Zones are treated as being within the UAE.
Q9: Is VAT Dubai charged on services supplied within or between Designated Zones?
A: Yes, VAT at 5% applies to services whether supplied within or between Designated Zones.
Q10: Is VAT charged when goods move from mainland UAE to a Designated Zone?
A: No, this is not an import. The supplier charges 5% VAT.
Q11: Is VAT paid when importing goods from outside the UAE to a Designated Zone?
A: No, such imports are out of scope of UAE VAT.
Q12: Can Designated Zones recover input VAT on purchases from mainland UAE?
A: Yes, they can recover input VAT per the general provisions.
Q13: Is VAT applicable when services are imported into Designated Zones?
A: Yes, reverse charge applies, whereby the business accounts for the VA Dubai
Q14: Are there conditions for VAT-free goods movements between Designated Zones?
A: Yes, the Executive Regulations prescribe conditions to be met.
Q15: Does the VAT return have separate fields for Designated Zone transactions?
A: No, they are reported in the standard fields in VAT Registration form 201.
