For the UAE VAT, the designated area will be considered to be outside the state or outside the implementing country. As a result, this requires differential VAT calculations when power is supplied from the designated area. In this article, we will understand the value-added tax treatment of goods supplied from designated areas in the following situations:

1. Cargo from a designated area to another designated area

2. Goods shipped from designated areas to the Mainland

3. Goods delivered from designated areas to outside the UAE

To learn more about designated areas, please read Value-added tax in designated areas and VAT in free zones in the UAE.

Goods supplied from a designated area to another designated area

The supply of goods between designated areas will not attract VAT. For example, a rose vendor located in the Jebel Ali Free Zone provided goods to the A-One vendor in the Dubai Airport Free Zone.

Dubai Free Zone

In the picture above, Jebel Ali Free Zone and Dubai Airport Free Zone are designated areas. Since the goods supplied by rose traders to first-tier traders are between designated areas, they will be exempt from VAT.

Goods supplied from a designated area to another designated area

As far as VAT is concerned, the designated area will be deemed to be outside of the country. As a result, the supply of goods from the designated area to suppliers located on the mainland (within the UAE state) will be considered as imports. Suppliers who purchase goods from designated areas will have to pay VAT in a reverse charge method, similar to importing goods from other countries/regions.

For example, a rose trader located in the Jebel Ali Free Zone provided goods to an Abdul trader located in the mainland of Dubai.

Goods provided in designated areas

In the picture above, goods are supplied from Jebel Ali Free Zone (designated area) to Dubai (inland). The supply of goods from the rose trader to the Abdul trader will attract a 5% value-added tax, which needs to be paid in reverse. Abdul Traders (Abdul Traders) need to pay RCM VAT, which is similar to importing goods from other countries/regions.

Goods delivered from designated areas to outside the UAE

Goods supplied from designated areas outside the UAE state will be considered as export goods and will become zero-tax supply.

For example, a rose trader in the Jebel Ali Free Zone provided goods to a national trader in India.

Transfer goods from designated areas

In the picture above, goods are supplied to India from the Jebel Ali Free Trade Zone (designated area). The supply of goods from the rose trader to the national trader will be considered as an export, and a 0% value-added tax will be levied.

In conclusion

The situation discussed above applies only to the supply of goods. In the case of the provision of services, VAT is handled differently. To learn more about the provision of services from designated areas, please read “Handling of Provision of Services from Designated Areas”.

VAT COMPUTATION IN CASE OF SERVICES SUPPLIED FROM DESIGNATED ZONE IN UAE

The value-added tax treatment of services provided from the designated area is different from the method of supply of goods. Unlike the provision of duty-free goods between designated areas, the provision of services cannot enjoy similar benefits. The reason is that if the supply location is within the designated area, the service location is considered to be in the UAE. This means that for any service provided in the designated area, a standard value-added tax rate of 5% will be levied.

In the following article, we will learn about VAT processing methods for services provided in designated areas:

1. Services provided from a designated area to another designated area

2. Services provided to the Mainland from designated areas

3. Services provided from designated areas outside the UAE State

To learn more about designated areas, please read Value-added tax in designated areas and VAT in free zones in the UAE.

Service from a designated area to another designated area

The supply of services between designated areas shall be taxed at a rate of 5%. This is because the location of supply of services provided in the designated area is considered to be in the state.

For example, Green Technologies located in the Jebel Ali Free Zone provides IT services to Maxwell Enterprise located in the Free Zone of Dubai Airport.

Goods supplied from a designated area to another area

In the picture above, Jebel Ali Free Zone and Dubai Airport Free Zone are designated areas. The supply of services from Green Technologies to Maxwell Technologies will attract 5% VAT.

Services provided to the mainland from designated areas

Services from designated areas to the mainland (inside the country) are taxable and a 5% value-added tax shall be charged on the service fee.

For example, Green Technologies, located in the Jebel Ali Free Zone, provided IT services to Stephen Enterprises, located in the mainland of Dubai.

Service from designated area to mainland

In the picture above, IT services are provided from Jebel Ali Free Zone (designated area) to Dubai (inland). IT services provided from green technology companies to Steven Enterprises will be taxed, and such IT services are subject to 5% value-added tax.

Services provided from designated areas outside the UAE State

Services provided outside the UAE State from the designated area will be considered as exports and will be supplied at zero tax rate.

For example, Green Technologies in the Jebel Ali Free Trade Zone provides services to National Enterprises in India.

Service from designated area to Osid UAE

In the picture above, services are provided to India from the Jebel Ali Free Trade Zone (designated area). Services provided from green technology companies to national enterprises will be considered exports, and the value-added tax rate is 0%.

In conclusion

Companies in designated areas need to understand the differential treatment of goods and services, and therefore charge value-added tax based on the nature of the supply. Similar to service provision, water or any form of energy supply location in a designated area will be considered within the state, and a 5% value-added tax will apply.

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