Designated Zones VAT

For the purpose of VAT in UAE, Designated Zones will be treated as being outside the State and outside the Implementing States. Though it is considered to be outside the State, movement of Goods from a place in the State to the Designated Zone will not be considered as an export of Goods. This implies that supply of goods from the mainland to the Designated Zone will not be zero-rated and the standard rate of VAT will be applicable.

On the other hand, goods imported from a place outside the State to a Designated Zone will not be considered as imports. This means, that the import of goods from other countries will not be taxable and it will be considered as out of the scope of UAE VAT.

Default rule

Since the place of supply for goods generally follows the location of the goods, a supply of goods within a Designated Zone is treated as made outside the UAE. This means that the default position is that such supplies are not subject to UAE VAT.

Override of the default rule

This default position is overridden where a supply of goods is made within a Designated Zone to a person to be consumed by him or another person - in these situations, the place of supply will be treated in the UAE and VAT will be applicable under the normal rules.

Identification of the intended use of goods

The onus is on the supplier to ensure that it treats a supply correctly for VAT purposes. Therefore, as a general rule, suppliers should not treat supplies of goods as being outside the scope of UAE VAT unless they are satisfied that there is no risk that the goods may be used by the purchaser for non-qualifying purposes. The Authority expects that in most arm-length situations, a written statement from the recipient that the goods will not be consumed should be sufficient for these purposes.

Transfers from outside the UAE

Since Designated Zones are treated as outside the UAE for VAT purposes, a movement or supply of goods into a Designated Zone from outside the UAE would be treated as taking place outside the UAE. Therefore, no UAE VAT would be charged on such movement or supply.

VAT on import

A movement of goods from a Designated Zone into the mainland UAE is treated as an import of goods into the UAE. Therefore, import VAT is payable by the importer of the goods.

Goods purchased from Designated Zone in UAE

Supply of goods between Designated Zones will not attract VAT. For example, ABC Traders located in Jebel Ali Free Zone purchased goods from XYZ Traders, Dubai Airport Free Zone.

In the above illustration, Jebel Ali Free Zone and Dubai Airport Free Zone are Designated Zones. The purchase of goods from XYZ Traders will be VAT free since the supply is between Designated Zones.

Goods supplied from Mainland to the Designated Zone

Movement of goods from a place inside the State to the Designated Zone will not be considered as export of goods. Thereby, the standard rate of VAT will be applicable on such purchases by the taxable person in Designated Zone. The Input VAT paid on such purchases can be recovered by adjusting with output VAT liabilities.

Goods supplied from outside the UAE State into Designated Zone

Goods purchased into Designated Zone from outside the UAE State will not be considered as imports and will be out of the scope of UAE VAT. As a result, there will be no VAT implications on such purchases.