With the implementation of VAT in the UAE on January 1, 2018, companies located in free zones are largely concerned about the impact of VAT on their businesses. As the first step to provide much-needed clarity in a free trade zone, the UAE VAT Enforcement Regulation defines designated areas and provides guidelines for designated areas to follow. Second, the designated area is determined by the UAE Cabinet and a list of designated areas is provided.
In this article, we will answer the most sought-after and frequently asked questions about “designated areas”, which will help you eliminate your doubts about “designated areas” in UAE VAT.
1. What is the designated area in the UAE VAT?
Answer: The designated area refers to the area designated by the cabinet, and the area meets the conditions stipulated in the UAE’s implementing regulations. In other words, the designated area is a VAT-free area, and for the purpose of VAT, the area is considered to be outside the UAE state.
2. Are all free zones designated in the UAE VAT?
Answer: No. Only those free zones determined by the UAE Cabinet are considered designated areas. For a list of designated regions, please read Value Added Tax in designated regions in the UAE.
3. Should companies located in designated areas apply for VAT registration in the UAE?
Answer: Yes, according to the registration threshold, companies located in designated areas must apply for VAT registration.
4. Are there any special regulations related to designated areas in the UAE VAT Law?
Answer: Yes, in terms of value-added tax, the designated area is considered to be outside the UAE, which means that most transactions completed in the designated area will enjoy special value-added tax treatment.
5. How will the goods transferred from one designated area to another designated area be processed for VAT?
Answer: VAT does not apply to the transportation of goods from one designated area to another.
6. If the goods are provided to customers outside the UAE (such as Dubai), are the goods taxable?
Answer: The supply will be taxed, but it will be done under the reverse charging mechanism. The payee or customer must pay taxes in a reverse charge method.
7. Assuming India is a country/region other than the UAE, what is the value-added tax treatment for exported goods?
Answer: It will be considered as zero tax rate and VAT will not apply.
8. Does the special value-added tax treatment apply to service provision in designated areas?
Answer: No. Only applicable to commodity supply. For services provided in designated areas, the place of supply is considered to be within the UAE.
9. Does VAT apply to service provision in designated areas?
Answer: Yes, 5% VAT is applicable in designated areas and when providing services to the mainland.
10. What is the value-added tax treatment for goods supplied from the UAE mainland to the designated area? Is it considered an import?
Answer: No, goods purchased from the mainland in the designated area are not regarded as imports. Suppliers will charge 5% VAT on such supplies.
11. Do I need to pay 5% value-added tax for imports from outside the UAE?
Answer: No, value-added tax is not applicable. Such imports are deemed to be outside the scope of UAE value-added tax.
12. Can the designated area recover the input VAT paid for goods purchased from the UAE mainland?
Answer: Yes, designated areas are eligible to receive input VAT according to the general rules for input VAT recovery.
13. Does VAT apply to import services into designated areas?
Answer: Yes, companies located in designated areas should pay value-added tax based on reverse billing.
14. What are the conditions for VAT-free circulation between designated areas?
Answer: Yes, the UAE VAT Implementation Regulations stipulate the conditions that companies must follow to provide free VAT between designated areas.
15. In the VAT return 201, are there any special fields for reporting transactions related to a designated area?
Answer: There is no separate field in the VAT Return Form 201 to report transactions related to the designated area.
To learn more about the impact of VAT on designated areas, please read the following article.
UAE Free Zone VAT
Value added tax in designated areas in the UAE
VAT calculation for goods provided in designated areas in the UAE
VAT calculation in the case of providing services from designated areas in the UAE