VAT in case of Services supplied from Designated Zone in UAE

VAT Computation in case of Services supplied from Designated Zone in UAE


The VAT treatment of services supplied from Designated Zones is different compared to the supply of goods. Unlike the goods, which are VAT free when supplied between Designated Zones, the supply of services does not enjoy similar benefits. The reason being, the place of supply of services is considered to be inside the State of UAE if the place of supply is in the Designated Zone. This implies, that for any services supplied within the Designated Zone, the standard rate of VAT at 5% will be levied.

In this article, we will understand the VAT treatment on services supplied from the Designated Zone in the following scenarios:

  • 1.Services supplied from Designated Zone to another Designated Zone
  • 2.Services supplied from Designated Zone to Mainland
  • 3.Services supplied from Designated Zone to outside the UAE State

To know more about Designated Zones, please read VAT on Designated Zone and VAT on Free Zones in UAE.

Services supplied from Designated Zone to another Designated Zone

Supply of services between Designated Zones is taxable at 5%. This is because, the place of supply for services supplied within the Designated Zone is considered to be within the State.

For example, Green Technologies, located Jebel Ali free zone, provided IT Services to Maxwell Enterprise, located in Dubai Airport Free Zone.

goods supplied from designated zones to another

In the above illustration, Jebel Ali Free Zone and Dubai Airport Free zone are Designated Zones. The supply of services from Green Technologies to Maxwell Technologies will attract VAT at 5%.

Services supplied from Designated Zone to Mainland

The supply of services from the Designated Zone to mainland (inside the State) are taxable and VAT at 5% should be charged on the supply of services.

For example, Green Technologies, located in the Jebel Ali free zone, provided IT Services to Stephen Enterprises, located in the Dubai mainland.

services from designated zone to mainland

In the above illustration, IT Services are supplied from Jebel Ali Free Zone (Designated Zone) to Dubai (mainland). The supply of IT Services from Green Technologies to Stephen Enterprises will be taxable and VAT at 5% need to be charged for such IT services.

Services supplied from Designated Zone to outside the UAE State

Services supplied from Designated Zone to outside the UAE State will be considered as exports and will be zero-rated supplies.

For example, Green Technologies located in the Jebel Ali Free Zone supplied services to National Enterprises, located in India.

Services from designated zones to ouside uae

In the above illustration, services are supplied from Jebel Ali Free Zone (Designated Zone) to India. The supply of services from Green Technologies to National Enterprises will be considered as exports and attract VAT at 0%.

Conclusion

The businesses located in Designated Zone need to understand the differential treatment on the supply of goods and supply of services and accordingly charge VAT based on the nature of supply. Similar to the supply of services, the place of supply of water or any form of energy in Designated Zone will be considered to be inside the State and VAT @ 5% will be applicable.