VAT FAQs on UAE Free Zone

Tally Solutions | Updated on: February 14, 2023


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.

FAQs on UAE Free & Designated Zones

FAQ 1: What is 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.

FAQ 2: Are all Free Zones Designated Zones in UAE 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..

FAQ 3: Should businesses located in Designated Zones apply for VAT Registration in UAE?

Answer: Yes, on the basis of registration threshold, businesses located in Designated Zones are required to apply for VAT registration.

FAQ 4: Are there any special provisions in UAE VAT Law related to Designated Zone?

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.

FAQ 5: What will be VAT treatment on goods transferred from one Designated Zone to another?

Answer: VAT will not be applicable on movement of goods from one Designated Zone to another.

FAQ 6: If goods are supplied to customers who are located outside the mainland of UAE State, let’s say Dubai, will the supply be taxable?

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.

FAQ 7: What will be the VAT treatment of Goods exported outside the UAE State, let’s say India?

Answer: It will be considered to be zero-rated and VAT will not be applicable.

FAQ 8: Does the special VAT treatment be applicable for supply of services in Designated Zone?

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.

FAQ 9: Is VAT applicable on the supply of services within Designated Zone?

Answer: Yes, VAT is applicable at 5% on the supply of Services within Designated Zone and to the mainland.

FAQ 10: What will be the VAT treatment of goods supplied from the mainland of UAE to Designated Zone? Is it considered as imports?

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.

FAQ 11: Should VAT at 5% need to be paid on import of goods from outside the UAE State?

Answer: No. VAT is not applicable and such imports are considered to be outside of the scope of UAE VAT.

FAQ 12: Can Designated Zone recover input VAT paid on the purchase of goods from the mainland of UAE?

Answer: Yes, the Designated Zones are eligible to recover the Input VAT in accordance with the general provisions of input VAT recovery.

FAQ 13: Is VAT applicable on the import of services into Designated Zone?

Answer: Yes, the business located in the Designated Zone should account and pay VAT on a reverse charge basis.

FAQ 14: Are there any conditions to be followed for VAT free movement of goods between Designated Zones?

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.

FAQ 15: In VAT Return Form 201, are there any special fields for reporting the transactions related to Designated Zone?

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.

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