VAT In UAE Freezone or Designated Zones

There are a lot of free trade zones available in UAE, across Dubai, Abu Dhabi, Sharjah, Ajman, Ras Al Khaimah & Umm Al Quwain. Depending on the area of operations they are widely categorized as airport free zones, seaport free zones,and mainland free zones. There are more than 45 Free Zones operating in the UAE. 

  • Free Trade Zones are an area designed to promote the international business in UAE by providing 100% foreign enterprise ownership. 
  • Free Zones offer attractive incentives such as no requirement for a UAE national as a local partner/shareholder, tax exemptions on duties and taxes such as Corporate, Personal Income Tax, all import and export duties etc. 

The businesses in Free Zones or Designated Zones are required to obtain the necessary licenses from the respective Free Zone authorities and comply with their guidelines when operating the business in this region.There are more than 45 Free Zones operating in UAE such as Jebel Ali Free Zone, Dubai Internet City Free Zone, Dubai Airport Free Zone etc

The important point an entrepreneur needs to take note is that ‘All Free Zone’ may not be a ‘VAT Free Zone’. This is very clearly mentioned in the definition and provisions defined in the UAE VAT Law and Executive Regulations. 

Designated Zones In UAE

In UAE Federal Tax Authority’s VAT law, VAT exempted Free Zones or “VAT Free Zones” are called ‘Designated Zones’ and the executive regulation prescribes the conditions which a Designated Zone needs to fulfill.

According to UAE Federal Tax Authority, Designated Zone refers to an area specified by a cabinet decision and that meets the conditions specified in the Executive Regulation. Out of 45 Free Zones in UAE, only 20 Free Zones are considered as Designated Zones. 

No VAT In Designated Zones

A designated zone that meets the conditions specified in the Executive Regulation of VAT law shall be treated as being outside the State.

Article (51) of the VAT law specifies that a Designated Zone will be treated as being outside the state and transfer of goods between designated zones are tax free.

Conditions For Designated Zones.

The Freezones meeting following conditions are considered as Designated Zones, and are considered as an outside the state.

  • Designated Zone must be located in a specific fenced geographical area
  • They need to have security measures and customs controls in place to monitor the entry and exit of individuals and the movement of goods to and from the area
  • There should be an internal procedures regarding the method of keeping, storing and processing of Goods with the Designated Zone
  • The management of the Designated Zone must follow the procedures set by the Authority.

If any of the companies located in these Designated Zones cannot comply with the above mentioned conditions required to consider as a business in Designated Zone, that business shall be treated as being inside the State, and will be treated at par with the businesses located outside the Designated Zone.

List of Designated Zone in UAE

Abu Dhabi

Dubai

Sharjah

Ajman

Umm Al Quwain

Ras Al Khaimah

Fujairah

 

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