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In the UAE, Value Added Tax (VAT) applies to the supply of most goods and services across the country. However, certain areas, known as Designated Zones, are treated as outside the UAE territory for VAT purposes.
Important:
Not all free zones qualify as Designated Zones.
Only specific zones, listed in a Cabinet Decision, benefit from special VAT treatment.
Understanding Designated Zones is crucial for businesses operating within UAE free zones to ensure VAT compliance.
A Designated Zone is a specific area in the UAE recognized for special VAT treatment, where supplies of goods are generally outside the scope of UAE VAT, subject to certain conditions.
Supplies made within or between Designated Zones can be VAT-free, while supplies for consumption within the zone, or services provided, may still attract VAT.
According to Cabinet Decision No. 59, Designated Zones are located in:
| Scenario | Place of Supply | VAT Treatment | Reason |
|---|---|---|---|
| A business buys chinaware for resale within a Designated Zone. | Designated Zone | Outside the scope of VAT | Goods purchased for resale, not for own consumption. |
| A business buys manufacturing tools for producing goods. | Designated Zone | Outside the scope of VAT | Tools are used to produce goods for sale, not consumed internally. |
| An individual buys goods for personal use. | Designated Zone | VAT applies | Goods are for private (non-business) consumption. |
| A business buys office furniture. | Designated Zone | VAT applies | Office supplies are consumed by the business. |
A Designated Zone is a free zone area treated as outside UAE VAT territory for certain goods transactions, provided it meets specific requirements.
Check for physical fencing, customs controls, goods handling rules, and FTA compliance. Confirm through official Cabinet Decisions or FTA updates.
No, only those specifically listed by the UAE Cabinet qualify as Designated Zones.
Supplies intended for resale or processing are generally outside the VAT scope; supplies for private or internal business use are subject to VAT.
Services provided within Designated Zones are generally subject to VAT, just like in the mainland.
Transfers between Designated Zones may remain VAT-free, subject to specific FTA conditions.
Yes, VAT is payable when goods move from a Designated Zone to the UAE mainland.
Real estate transactions may still be subject to VAT, depending on the nature of the property and the transaction.
Yes, if they meet the VAT grouping eligibility criteria.
Yes, eligible businesses can recover input VAT on taxable supplies.
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Yes, all our bookkeeping and accounting services are fully VAT-compliant. We manage VAT calculations, returns, and timely submissions to the Federal Tax Authority (FTA), ensuring your business stays compliant and avoids penalties.
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