For VAT purposes in the UAE, Designated Zones are treated as being outside the State and other Implementing States. Although considered outside the State, moving Goods from within the State to a Designated Zone is not deemed an export of Goods. This means that supplying goods from mainland UAE to a Designated Zone is not zero-rated and the standard VAT Registration rate applies.
On the other hand, goods imported to a Designated Zone from outside the State are not considered imports. Therefore, importing goods from other countries is not taxable and is out of scope of UAE VAT Registration.
This article examines the VAT treatment of goods purchased into a Designated Zone under these scenarios:
Goods purchased from a Designated Zone in the UAE
Goods supplied from the UAE mainland
Goods supplied from outside the UAE
See VAT on Designated Zones and VAT Registration on Free Zones in the UAE for more on Designated Zones.
Goods purchased from a Designated Zone:
VAT Return uae does not apply to goods supplied between Designated Zones. For instance, Rose Traders in Jebel Ali Free Zone buys goods from A-One Traders in Dubai Airport Free Zone.
Since Jebel Ali and Dubai Airport Free Zones are Designated Zones, Rose Traders’ purchase from A-One Traders is VAT-free as it is a supply between Designated Zones.
Goods supplied from the mainland to a Designated Zone:
Moving goods from within the State to a Designated Zone is not considered an export. Therefore, the standard VAT rate applies to such purchases by a taxable person in a Designated Zone. The taxable person can recover the input VAT dubai paid by adjusting it against output VAT liabilities.
For example, Rose Traders in Jebel Ali Free Zone buys goods from Abdul Traders in mainland Dubai.
The supply from Abdul Traders to Rose Traders is subject to 5% VAT since supplies from the mainland to a Designated Zone are not exports.
Goods supplied from outside the UAE into a Designated Zone:
Goods purchased into a Designated Zone from outside the UAE are not considered imports and are out of scope of UAE VAT dubai. Hence, there are no VAT implications on such purchases.
For instance, Rose Traders in Jebel Ali Free Zone buys goods from National Traders in India.
The purchase by Rose Traders from National Traders is out of scope of UAE VAT since it is a supply into a Designated Zone from outside the UAE. Therefore, VAT dubai does not apply.
In summary, two key points for UAE businesses: First, purchases from the UAE mainland are not exports, so VAT at 5% applies. Second, purchases from outside the UAE are not imports and are outside the scope of UAE VAT.