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This Federal Tax Authority guide clarifies the Value Added Tax (VAT) treatment of Designated Zones in the UAE. It details the criteria a Free Zone must meet to be classified as a Designated Zone, as specified by a Cabinet Decision. The guide explains that for VAT purposes, these zones are treated as outside the UAE territory for certain supplies of goods, but not for services. It elaborates on the rules for supplies within, between, and from Designated Zones, including transfers, imports, and consumption of goods, primarily clarifying the application of the VAT Executive Regulations and associated record-keeping obligations.

Designated Zones

VAT Guide | VATGDZ1

Issue 1 July 2018

1. Introduction

1.1. Overview
1. 1.1.1. Short brief
2. 1.1.2. Purpose of this document
3. 1.1.3. Who should read this document?

2. Identification of Designated Zones

2.1. VAT treatment of Free Zones
2.2. Identification of a Designated Zone
2.3. Entities within a Designated Zone
2.4. VAT registration

3. Application of VAT

3.1. Introduction
3.2. Supply of services
3.3. Supply of goods within a Designated Zone
1. 3.3.1. Default rule
2. 3.3.2. Override of the default rule
3. 3.3.3. Identification of the intended use of goods
3.4. Transfers of goods into a Designated Zone
1. 3.4.1. Transfers from outside the UAE
2. 3.4.2. Transfers from mainland UAE
3. 3.4.3. Transfers between Designated Zones
3.5. Import of goods from Designated Zones
1. 3.5.1. VAT on import
2. 3.5.2. Supplies following importation
3. 3.5.3. Summary
3.6. Subsequent consumption or loss of goods
3.7. High level outline of VAT treatment of goods

4. Specific cases

4.1. Supplies of water and energy
4.2. Supplies of real estate
4.3. Tax groups (VAT groups)
4.4. Branches
4.5. VAT recovery

Introduction

Overview

Short brief

VAT has been introduced with effect from 1 January 2018 in the UAE. As a general consumption tax on the supply of goods and services, it applies to those supplies which take place within the territorial area of the UAE.

Historically, Free Zones have been excluded from the territorial scope of the UAE. For VAT purposes, this is not automatically the case. Only those Free Zones listed in a Cabinet Decision qualify for special VAT treatment and that special VAT treatment has certain limitations. These nominated Free Zones are known as Designated Zones for VAT purposes.

Designated Zones are:

Subject to strict control criteria;
Required to have security procedures in place to control the movement of goods and people to and from the Designated Zone;
Required to have Customs procedures to control the movement of goods into and out of the Designated Zone; and
Treated as being outside the territory of the UAE for VAT purposes for certain supplies of goods.

The effect for businesses operating in Designated Zones will be that many supplies of goods will be outside the scope of UAE VAT, subject to strict criteria and detailed record keeping. However, supplies of services are subject to the normal UAE VAT rules.

Contents

Introduction

Overview

Short brief