VAT Exempted Free Zones in UAE
Yes, you read it right, Federal Tax Authority declared twenty free zones as designated zones for VAT purpose – with some exceptions. Now business registered under these free zones can trade goods VAT free between designated zones. But supply of all services between designated zones is subject to VAT at the standard rate of 5%. Further, any supplies of goods and services from designated zone to mainland and vice versa will also subject to VAT at the standard rate of 5%.
The table below details the VAT applicability on supplies made from/to the Designated Zones.
| Supplier (Form) | Recipient (To) | Supply of Goods | Supply of real estate | Supply of services |
| Designated Zone | Designated Zone | Non-Taxable (Subject to condition that goods are not consumed within DZ) | Out of Scope | 5% |
| Designated Zone | Mainland* | Taxable at 5% VAT | – | 5% |
| Mainland* | Designated Zone | Taxable at 5% VAT | – | 5% |
| Designated Zone | Oversea/GCC countries | Non-Taxable | – | 0% / Out of scope |
| Oversea/GCC countries | Designated Zone | Non-Taxable | – | RCM* |
* Mainland here refers to place in UAE except the Designated Zones
* Reverse Charge Mechanism (A mechanism for recipient to charge VAT to themselves)
Following are the exceptions:
- If goods sold inside the designated zone for consumption purpose it will be taxable at standard rate of 5% as VAT is consumption based tax.
- Water and all forms of energy consumed within designated zone will be subject to VAT.
- VAT registration will be required for DZ company, if taxable supplies reach or about to reach threshold limit* as prescribed in VAT law.
The threshold limit for VAT registration will be:-
- Mandatory registration threshold: AED 375,000 (in last 12 months or expected in next 30 days)
- Voluntary registration threshold: AED 187,500 (in last 12 months or expected in next 30 days
Following Free Zones are declared as designated zones in UAE for VAT purpose in UAE:
| Designated Zones (Abu Dhabi):
1) Free Trade Zone of Khalifa Port 2) Abu Dhabi Airport Free Zone 3) Khalifa Industrial Zone
Designated Zones (Fujairah) 1) Fujairah Free Zone 2) FOIZ (Fujairah Oil Industry Zone) |
Designated Zones (Dubai):
1) Jebel Ali Free Zone (North-South) 2) Dubai Cars and Automotive Zone (DUCAMZ) 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 |
| Designated Zones (Sharjah)
1) Hamriyah Free Zone 2) Sharjah Airport International Free Zone |
Designated Zones (Ajman)
1) Ajman Free Zone |
| Designated Zones (Umm Al Quwain)
1) Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port 2) Umm Al Quwain Free Trade Zone on Sheikh Monhammed Bin Zayed Road |
Designated Zones (Ras Al Khaimah)
1) RAK Free Trade Zone |
Flying Colour Tax Consultants competent team could assist you in:
- VAT Compliance and Registration.
- VAT Implementation & Changes in current accounting system as per VAT Law.
- Timely and Correct Submission of VAT Tax Return (Form VAT201).
- Timely and Correct Submission of VAT Tax Refunds (Form VAT311).
- Preparation of FTA compliant Books of Accounts.
- Assistance in FTA compliant Record Keeping & Documentation.
This blog post is written by Mr. Dilip (CA). Feel free to call our Business Adviser today for a quality consultation relating your queries. Please send inquiry to info[at]flyingcolour[dot]com or call +971 4 4542366.
