What is a Designated Zone?
How to Identify a Designated Zone?
Fenced Area
The zone must be a physically fenced area.
Security and Customs Control
The zone must have security measures and customs controls in place to monitor the movement of individuals and goods in and out of the zone.
Goods Handling Regulations
The zone must have specific regulations for the storage, handling, and processing of goods.
Compliance
The zone operator must adhere to the rules and regulations set by the Federal Tax Authority (FTA).
List of Designated Zones in the UAE
Examples of VAT Treatment in Designated Zones
Scenario |
Place of Supply |
VAT Treatment |
Reason |
|---|---|---|---|
|
A business buys chinaware for resale within the Designated Zone. |
Designated Zone |
Outside the scope of VAT |
The goods are for resale, not for consumption. |
|
The goods are for resale, not for consumption. |
Designated Zone |
Outside the scope of VAT |
The tools are used to produce goods for sale, not consumed by the business. |
Scenario |
Place of Supply |
VAT Treatment |
Reason |
|---|---|---|---|
|
An individual buys goods for private use in a Designated Zone. |
Designated Zone |
VAT applies |
Goods used for non-business purposes are subject to VAT. |
|
A business buys office supplies like furniture in a Designated Zone. |
Designated Zone |
VAT applies |
Office supplies are consumed by the business, not used in manufacturing. |
Frequently Asked Questions
What is a designated zone in the UAE?
A designated zone in the UAE is a free zone that is considered outside UAE territory for VAT purposes. Goods and services supplied within these zones may be exempt from VAT, with certain exceptions.
How can I identify a designated zone?
A designated zone must meet specific criteria, such as having a fenced area, customs control, security measures, and complying with regulations set by the Federal Tax Authority (FTA). The list of designated zones is defined in a Cabinet Decision.
Are all free zones designated zones?
No, not all free zones are designated zones. Only those listed in the Cabinet Decision are considered designated zones, which enjoy special VAT treatment.
What is the VAT treatment for goods supplied in designated zones?
Goods supplied within designated zones are generally outside the scope of VAT. However, if goods are used for private purposes, VAT may apply.
How does VAT apply to services supplied in designated zones?
Most services supplied within a designated zone are subject to the standard UAE VAT rate, as services are considered to be supplied within the UAE territory.
What happens when goods are transferred between designated zones?
Goods transferred between designated zones are VAT exempt as long as the goods are not modified or consumed and the transfer follows customs suspension rules.
Are goods imported from a designated zone to the mainland subject to VAT?
Yes, goods imported from a designated zone to the UAE mainland are subject to import VAT, which can be recovered if conditions are met.
Are real estate transactions in designated zones subject to VAT?
Sales and leases of real estate in designated zones are generally exempt from VAT, as they are considered supplies of goods. However, real estate services provided in designated zones are subject to VAT.
Can businesses in designated zones form tax groups?
Yes, businesses in designated zones can form tax groups with other companies, including those on the mainland. However, VAT on goods transferred to the mainland will be applicable.
Can businesses in designated zones recover VAT?
Businesses in designated zones can recover VAT on expenses related to taxable supplies made in the UAE or if the supply would be taxable if made in the UAE territory.