Designated Zones in the UAE -Explained.

In 2018, the UAE implemented a Value Added Tax (VAT) system, encompassing the provision of goods and services within the country. This taxation regime extends uniformly to businesses registered for tax purposes, whether located on the Mainland or within the Free Zones.

Nevertheless, specific Free Zones, designated as "Designated Zones" by the UAE Cabinet, have been granted special tax status. Within these Designated Zones, trade activities are exempt from VAT, whether conducted internally or externally. However, it is important to note that there are exceptions to this rule.

Despite the Cabinet's designation of a zone as a "Designated Zone," it must still meet specific criteria, as outlined below, to be considered a location outside the boundaries of the UAE for tax purposes.

What is a Designated Zone?

A Designated Zone is considered as being outside the UAE for VAT purposes as per Article 51 of Federal Decree-Law No. 8 of 2017.

There are several main criteria which must be met in order for a Designated Zone to be treated as outside the UAE for VAT purposes.

These are as follows:

1. The Designated Zone must be a specific fenced geographic area.

2. The Designated Zone must have security measures and Customs controls in place to monitor the entry and exit of individuals and movement of goods to and from the Designated Zone.

3. The Designated Zone must have internal procedures regarding the method of keeping, storing and processing of goods within the Designated Zone.

4. The operator of the Designated Zone must comply with the procedures set out by the FTA.

In certain instances, an area of a Designated Zone will be effectively treated as ‘offshore’ for VAT purposes, i.e. as if it is outside of the territory of the UAE for the purposes of the tax.

How is VAT calcuted for companies in a Designated Zone ?

• Supply of Service

Where the services are rendered within the UAE, the place of supply is considered to be within the UAE and such services are potentially taxed in accordance with the general VAT rules for supplies. When services are exported (i.e. made to a person who is resident and located outside the GCC Implementing States), then the services are zero rated.

• Supply of Goods

A designated zone will be considered as “offshore” if the above-mentioned conditions are met. As a general rule, such supplies are not subject to UAE VAT. This rule will not apply to goods where a supply is made within the Designated Zone to another person to be “consumed”.

The word “consumed” is used in broad terms to include – ‘Any utilisation, application, employment, deployment or exploitation of the goods.’ Supply of goods is not known as consumed if the goods supplied is being incorporated, attached, form part or converted into another good located in the same designated zone, so long as that other good is not consumed. A resale of purchased good will not be considered as consumption of goods for the purposes of this section.

• Transfer of goods into the Designated Zone from outside the UAE

No UAE VAT would be charged on such movement or supply as it is treated as taking place outside the UAE.

• Transfer of goods into the Designated Zone from the Mainland

Such movements and supplies are treated as local movements / supplies and are not considered to be an export of goods from the UAE.

• Transfer between Designated Zone

This transfer will be treated as outside the scope of VAT on the following two conditions being met:

1. The goods, (in part or entirety) are not released into circulation, nor used or altered in any way during the transfer between the Designated Zones.

2. The transfer for the goods is undertaken in accordance with the rules for Customs suspension per the GCC Common Customs Law.

• Import of goods from Designated Zone

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

List of Designated Zones

	Designated Zones in Abu Dhabi
1	Free Trade Zone of Khalifa Port
2	​Abu Dhabi Airport Free Zone
3	Khalifa Industrial Zone
4	Al Ain International Airport Free Zone
5	Al Butain International Airport Free Zone

	Designated Zones in Dubai
1	Jebel Ali Free Zone (North-South)
2	Dubai Cars and Automotive Zone
3	Dubai Textile City
4	Free Zone Area in Al Quoz
5	Free Zone Area in Al Qusais
6	Dubai Aviation City
7	Dubai Airport Free Zone
8	International Humanitarian City – Jebel Ali

	Designated Zones in Sharjah
1	Hamriyah Free Zone
2	Sharjah Airport International Free Zone

	Designated Zones in Ajman
1	Ajman Free Zone

	Designated Zones in Umm Al Quwain
1	Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
2	Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road

	Designated Zones in Ras Al Khaimah
1	RAK Port Free Zone
2	RAK Maritime City Free ZoneRAK Maritime City Free Zone
3	RAK Airport Free Zone
4	Al Hamra Industrial Zone –Free Zone
5	Al Ghail Industrial Zone – Free Zone
6	Al Hulaila Industrial Zone – Free Zone

	Designated Zones in Fujairah
1	Fujairah Free Zone
2	FOIZ (Fujairah Oil Industry Zone)