UAE free zones are special economic zones. They have their own official government laws, including the federal law and the labor ministry laws. For UAE VAT law, VAT is applicable in certain free zones which are called ‘Designated Zones’. The Executive Regulation prescribes the conditions which a Designated Zones needs to fulfill.
Vat is treated separately in the free zones, although they are part of the UAE.
Criteria for Designated Free Zone
- Specific fenced geographic area;
- It has security measures and customs controls in place in order to monitor the entry and exit of people and movement of goods;
- Availability of internal procedures for keeping, storing and processing of goods within the area;
- The administrator of the designated zone agrees to comply with all the procedures set out by the Federal Tax Authority (FTA).
VAT Laws for Businesses within Designated Zones
- Businesses in a designated zone need to register for VAT and follow all the VAT rules.
- A business can join a VAT group only if they meet vat group conditions.
VAT Rates for Goods Supplied Between Designated Zones
|Type of supplies||From||To||Taxability/rate|
|Goods||Designated zone||Designated zone||Non taxable|
|Goods||Designated zone||mainland||Taxable at 5% VAT|
|Goods||Mainland||Designated zone||Taxable at 5% VAT|
|Goods||Designated zone||Oversea/GCC||Non taxable|
|Goods||Oversea/GCC||Designated Zone||Non taxable|
Goods supply between designated zones will not be subjected to VAT if it meets the following conditions:
- If goods are not used or altered during the transfer between the Designated Zones.
- The transfer of the goods is undertaken in accordance with the rules of GCC Common Customs Law.
Self-Consumption of Goods Supplied to a Designated Zone
All the self-consumed goods supplied to the designated zone are subject to VAT. However, there are certain scenarios where the consumption of goods within a Designated Zone is not subject to VAT. The following are the exceptions:
- Goods that are incorporated into other goods,
- Goods that are attached to other goods,
- The usage of goods is such a way that they take the form of other goods,
- If the Goods are used in the production of other goods in the same designated zone.
VAT Regulation for Rendering Services from a Designated Zone
The supply of goods & services between the free zones is treated differently. The supply of the goods between the designated zones is tax-free, whereas the supply of service may be charged with VAT.
VAT Treatment for VAT Groups
Businesses in the designated zone can form a tax group with a mainland company or another designated zone company. If the supply of goods is between the tax group members which results in the movement of goods from the mainland to the designated zone, then import vat is charged.
VAT Registration Services in UAE
The applicability of VAT for goods in UAE free zones can be difficult to assess without the guidance of experts. Fortunately, VAT agents in UAE can be assessed and they provide all the essential information on the implementation of VAT for business.