What are Designated Zones in the UAE?

Currently, there are over 20 free zones considered ‘Designated Zones’ in the UAE, and these jurisdictions are based all across the UAE. Through this article, we will unearth the true definition of a designated zone, the regulations applicable to it, and how it differs from a conventional free zone.

Definition of a Designated Zone in the UAE

A designated zone may be defined as a free zone that has different regulations for the application of VAT (Value Added Tax) in the UAE. Specifically, a designated zone is treated as a jurisdiction outside the UAE for VAT purposes. The UAE’s Federal Decree-Law No. 8 of 2017 on Value Added Tax has laid down certain eligibility criteria for a free zone to be deemed as a designated zone.
1. The free zone must be geographically demarcated through fencing or gating. It must have full-fledged security checks and customs control in place to oversee the movement of goods to and from the free zone.
2. All the relevant records must be well preserved by the free zone authority.
3. The storage of goods within the jurisdiction must be governed by well-defined regulations. The same applies to the retrieval and processing of goods.

Check Out: Dubai Free Zones

VAT Rules for Designated Zones in the UAE

Here, we’ve detailed how VAT applies to different scenarios involving the supply of goods and services within, to, and from designated zones.

For Businesses Within a Designated Zone

A business incorporated within a designated zone must adhere to the same VAT regulations that apply to mainland businesses.

Check Out: VAT Registration in Dubai

For Goods Moving from Designated Zones to the UAE Mainland

Generally, goods transferred from a designated zone to the UAE mainland attract VAT at standard rates. However, if the VAT has been applied twice i.e. during its movement into the designated zone and then from the designated zone to the UAE mainland, VAT recovery is possible if the quantity of goods remains unchanged throughout.

Check Out: Dubai Mainland Business Setup

For Goods Moving From UAE Mainland to Designated Zones

Goods arriving at the designated zone from the UAE mainland will be liable for VAT.

For Goods Moving Within the Designated Zone

If the goods supply takes place within the designated zone, it is usually not subject to VAT. However, there is an exception to this. If the goods are provided to an entity for use for a private purpose, the standard VAT rate will be applicable. If the goods are bought with the intent to resell, they won’t be liable for VAT. Also, if the goods will be used for the purpose of manufacturing other goods, they will not be charged for VAT. As an example, a mineral that is to be used as a raw mineral for manufacturing an end product will not attract VAT.

For Goods Moving From Overseas to Designated Zones

Goods arriving at the designated zone from overseas won’t be considered as liable for VAT.

For Goods Moving Between Designated Zones

For an inter-designated zone transfer of goods to be exempt from VAT, the following conditions must be met:

1. There should be no modification on the goods in transfer.
2. The movement of goods should be in line with the GCC Common Customs Law’s relevant regulations.

For Services Provided Within the Designated Zone

Any services provided within a designated zone in the UAE will attract VAT at the conventional rates. However, if the service is provided to a UAE resident based in a country other than GCC countries, it is possible for the service to be deemed as zero-rated.

Check Out: Business Setup in the UAE

Notable Examples of Designated Zones in the UAE

Here are some common examples of free zones that are considered as designated zones in the UAE.

1. Jebel Ali Free Zone
2. Dubai Airport Free Zone
3. Dubai Textile City
4. Sharjah Airport International Free Zone
5. Ajman Free Zone
6. RAK Free Trade Zone
7. Fujairah Free Zone

InZone is a corporate service provider in the Emirate of Dubai and can assist you with business setup in the designated zones of the UAE. Also, as an all-in-one corporate services provider, InZone can help you fulfill your obligations related to VAT in the UAE.