For the purpose of UAE VAT, the designated area will be considered to be outside the state and outside the implementing country. Although the goods are considered to be outside the country, the transportation of goods from somewhere in the state to a designated area will not be considered as an export of goods. This means that the supply of goods from the mainland to the designated area will not be zero-rated, and the standard value-added tax rate will apply.
On the other hand, goods imported into designated areas from outside the country will not be considered imports. This means that goods imported from other countries/regions are not subject to tax, which will be deemed to be outside the scope of UAE VAT.
In this article, we will understand the value-added tax treatment of goods purchased in the specified area under the following circumstances:
1. Products purchased from designated areas in the UAE
2. Mainland goods
3. Goods provided from outside the UAE
To learn more about designated areas, please read UAE about VAT in designated areas and VAT in free zones.
Products purchased from designated areas in the UAE
The supply of goods between designated areas will not attract VAT. For example, a rose merchant located in the Jebel Ali Free Trade Zone purchased goods from a merchant in A-One Dubai Airport Free Trade Zone.
In the picture above, Jebel Ali Free Zone and Dubai Airport Free Zone are designated areas. Since the supply is carried out between designated areas, the purchase of goods from A-One traders will be exempt from VAT.
Goods supplied from the Mainland to designated areas
The transfer of goods from a location within the country to a designated area will not be considered as an export of goods. Therefore, taxable persons in designated areas apply the standard VAT rate for such purchases. The input VAT paid for purchasing such products can be recovered by adjusting the output VAT liability.
For example, a rose trader located in the Jebel Ali Free Zone bought goods from an Abdul trader located in the mainland of Dubai.
In the picture above, the goods were purchased from Dubai (inland) to the Jebel Ali Free Trade Zone (designated area). Goods supplied from Abdul Traders to Rose Traders will attract 5% VAT. This is because the supply of goods from the mainland to the designated area is not considered an export.
Goods entering designated areas from outside the UAE
Goods entering the designated area from outside the UAE state will not be regarded as imported goods and are not within the UAE VAT scope. Therefore, such purchases will not involve VAT.
For example, a rose merchant in the Jebel Ali Free Zone bought goods from a national merchant in India.
Outside the cargo
In the picture above, the goods were purchased from India to the Jebel Ali Free Trade Zone (designated area). Products purchased by rose traders from national traders will be deemed to be outside the scope of UAE VAT. Therefore, VAT is not applicable.
Companies located in the UAE should pay attention to the above two points. First of all, goods purchased from the mainland (within the UAE) are not considered export goods, which means that such purchases are subject to a 5% value-added tax. Secondly, goods purchased from outside the state are not considered imported goods and will not be covered by the UAE VAT.