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With the implementation of VAT in UAE on 1st January, 2018, the businesses located in Free Zone were largely worried about the VAT implication on their business. As a first step towards providing the much-needed clarity on free trade zone, the UAE VAT Executive Regulations defined the Designated Zone and provided the guidelines to be followed by the Designated Zone. Secondly, Designated Zones were decided by the UAE cabinet and list of the Designated Zones were made available.
In this article, we are answering the most sought after and frequently asked questions on Designated Zone which will help in clearing your doubts on Designated Zone in UAE VAT.
Answer: A Designated Zone is an area which is specified by the cabinet decision and that meets the conditions prescribed in the UAE Executive Regulation. In other words, the Designated Zone is a VAT free Zone which is considered to be outside the State of UAE for the purpose of the VAT.
Answer: No. Only those Free Zones which are decided by the UAE Cabinet are considered as Designated Zones. To know the list of Designated Zones, please read VAT on Designated Zone in UAE..
Answer: Yes, on the basis of registration threshold, businesses located in Designated Zones are required to apply for VAT registration.
Answer: Yes, for the purpose of VAT, Designated Zones are considered to be outside the State of UAE, meaning, most of the transactions done by the Designated Zone will have a special VAT treatment.
Answer: VAT will not be applicable on movement of goods from one Designated Zone to another.
Answer: The supply will be taxable, however it will be under Reverse Charge Mechanism. The recipient or the customer has to pay tax on reverse charge basis.
Answer: It will be considered to be zero-rated and VAT will not be applicable.
Answer: No. It is only applicable for the supply of goods. For services supplied within Designated Zone, the place of supply is considered to be within the State of UAE.
Answer: Yes, VAT is applicable at 5% on the supply of Services within Designated Zone and to the mainland.
Answer: No, purchase of goods by Designated Zones from the mainland is not considered as imports. The Supplier will charge VAT at 5% on such supplies.
Answer: No. VAT is not applicable and such imports are considered to be outside of the scope of UAE VAT.
Answer: Yes, the Designated Zones are eligible to recover the Input VAT in accordance with the general provisions of input VAT recovery.
Answer: Yes, the business located in the Designated Zone should account and pay VAT on a reverse charge basis.
Answer: Yes, the UAE VAT Executive Regulations have prescribed the conditions which businesses need to follow for making VAT free supply of goods between Designated Zones.
Answer: There are no separate fields for reporting the transactions related to Designated Zone in VAT Return Form 201.
To know in detail about the VAT implications on Designated Zone, please read the following articles.
Reverse Charge Mechanism on Electronic Devices in the UAE Using TallyPrime
TallyPrime’s Flexible Voucher Numbering Capabilities for Accurate Recordkeeping