(Since the creation of the GCC VAT framework, and even before the implementation of the UAE VAT Law, one question that comes into most enterprises is whether VAT applies in Free Zones. Entrepreneurs want to know if the VAT laws for free zones would change and if there would be any reductions in the VAT rate in free zones. Of course, the VAT calculation is different for Designated zones. Before going in-depth into UAE VAT designated zones, let’s define a free zone in the UAE.
What is a Free Zone in UAE?
A free zone is a region to boost commercial activity in the UAE which allows companies to hold 100 % foreign ownership of the company. Free Zones provide appealing benefits such as no necessity for a UAE person to be a local partner/shareholder, tax exemptions on duties and taxes such as Corporate, Personal Income Tax, all import and export charges, and so on. When establishing a business in a Free Zone, entrepreneurs oblige to get the relevant license from the respective Free Zone authorities and follow their requirements.
Let’s go through the Designated zones in UAE
The first and most vital point to bear in mind is that an ‘All Free Zone’ may not be a ‘VAT Free Zone.’Under UAE VAT law, VAT Free Zones , known as as ‘Designated Zones,’ and the executive order specifies the conditions that a Designated Zone must achieve. A Designated Zone is an area that has been designated by cabinet decisions and complies with UAE Executive Regulation standards. To put it another way, the Designated Zone is a VAT-free zone that is deemed outside the UAE for Value Added Tax purposes. As a result, there will be no VAT applied to any items transported between Designated Zones.
A few parameters are there for this to occur:-
- Enclosed Territory-The designated zones should be completely enclosed/fenced. It should be done with safety precautions in place, as well as customs regulations to screen people and commodities entering and exiting the zones.
- Policy on Internal goods processing– In order to store, keep, and process commodities, the zone must have an internal methodology.
- Adherence with tax laws-Administrators of designated zones must adhere to the federal tax authority’s benchmarks.
Now we will look upon the vat regulation policies in designated zones in UAE
The Value Added Tax (VAT), which went into effect on January 1, 2018, is a general consumption tax on goods and services. This rule applies to any supplies exchanged within the UAE’s geographical area. When it comes to VAT Designated zones in the United Arab Emirates, however, there is an exemption to this provision. One of the reasons is that, because these jurisdictions are walled, the supply of products transferred to or from a designated zone may be inspected. Other jurisdictions, such as the mainland and free zones, are, on the other hand, open. As a result, observing and regulating the transfer of goods across jurisdictions for VAT purposes is more difficult.
We can list the applied VAT in various transfers:-
- Supply of goods to other countries from designated zones and back-VAT is not applicable for sales and purchase of goods. That means not taxable
- Supply of goods between designated zones- VAT is not taxable only if they comply with the following conditions:-
- The goods are not released during the transfer between the Designated Zones;
- Don’t alter or utilize the goods during transfer
- The transfer of goods is in conformity with the GCC Common Customs Law’s rules for customs suspension.
- If the prerequisites for the transfer of commodities do not fulfills, the owner of the goods offers a monetary guarantee to the authorities.
- Supply of goods to other places in UAE from designated zones and back-5% VAT is taxable
- Supply of services between designated zones-While the delivery of commodities between Designated Zones is tax-free, the same cannot be said for the supply of services. The rationale for this is that if the place of supply is in the Designated Zone, considers being inside the State of UAE. This means that any services provided from other places in UAE to the Designated Zone or inside the Designated Zone will be subject to the usual rate of VAT of 5%.
- According to the recent clarification published by the Federal Tax Authority, the sale and/or lease of commercial and residential properties within UAE Designated Zones will be exempt from VAT (FTA).
Here is the list of Designated Zones in the UAE
Cabinet Decision No. (59) of 2017 defines 20 zones as Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on VAT.
- Free trade zone of khalifa port
- Abudhabi Airport free zone
- Khalifa industrial zone
- Ajman free zone
- Jebel Ali free zone
- Dubai Cars and Automotive Zone
- Dubai Textile City
- Free zone area in Al Quoz
- Free zone area in Al Qusais
- Dubai Aviation City
- Dubai Airport Free zone
- FFZ(Fujairah Free Zone)
- Fujairah oil industry zone
Ras Al Khaimah
- RAK Free trade zone
- Ras Al Khaimah Maritime City free zone
- RAK Airport Free Zone
- Hamriyah Free Zone
- Sharjah international airport free zone
Umm Al Quwain
- UAQ Free trade zone in Ahmed Bin Rashid Port
- Umm al Quwain Free trade zone in Sheikh Mohammed Bin Zayed Road
So, are you planning to start a business in UAE designated zones?
Each UAE Designated Zone has its own set of attractive programs for foreign investors, but they are not all the same. To begin doing business in these highly lucrative Designated Zones, new investors should contact Business Link UAE for the most up-to-date information on available facilities as well as assistance in settling into the UAE Designated Zones.
Business Link is having over 20 years of expertise in assisting the business setup process for both entrepreneurs and companies. We have the best professional team with in-depth knowledge of UAE laws and regulations.
Our skilled experts will walk you through the entire procedure, from registering your business and understanding the VAT designated zones in the United Arab Emirates to receiving approvals from the appropriate authorities.
Hurry..Don’t waste time…Call us today….
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