Table of Contents
Three UAE Free Zones Exempted Areas
The Federal Tax Authority (FTA) has declared three new UAE free zones that will be exempted from the VAT, adding them to the list of vat-free designated zones. The total number of designated zones in the UAE now stands at 23, after the latest edition. All these areas are out of the scope of the UAE VAT, which was implemented in January this year.
According to the Federal Decree Law No. (8) of 2017, any area that meets certain eligibility conditions is regarded as a designated zone and will be treated as out of the VAT scope.
The newly added free zones to the list are Al Bateen Executive Airport Free Zone in Abu Dhabi, Al Ain International Airport Free Zone, and International Humanitarian City – Jebel Ali in Dubai. No VAT shall be applied on the transactions done within the new Designated Zones besides a few exceptions.
“Some businesses in these designated zones may potentially now deregister for VAT purposes. It will be important for them to assess again their transactions in the zone and determine which ones are actually subject to VAT and which ones are not. Although this constitutes an important relief, the transactions with designated zones can be complex,” said Thomas Vanhee, partner at Aurifer Middle East Tax.
How is VAT applicable in UAE Designated Zones
Out of the 23 designated zones
- 8 are located in Dubai
- 3 in Ras Al Khaimah (RAK)
- 2 in Sharjah
- 5 in Abu Dhabi
- 2 each in Umm Al Quwain (UAQ) and Fujairah, and 1 in Ajman.
At present, there are more than 45 VAT free zones across the UAE, the highest in the world, with another 10 free zones under construction. Dubai alone has around 30 free zones now. International Humanitarian City in Dubai, with its 70 diverse members, is the biggest among these.
The UAE Free Zones recorded exports worth Dh225.5 billion in 2017 alone, which was 19.5 per cent of the total exports made by the UAE last year, as reported by the Central Bank. The exemption from VAT further supports the cause and is expected to grow the exports even more in the coming period.
The VAT benefits can still be availed by all companies located in the free zones for goods that are supplied not to be used within the country, as these transactions are also out of the VAT scope.
The new free zones that are under-construction may also be added to the list of designated zones if they meet the criteria of customs restricted access, as suggested by the UAE VAT law.
The UAE Cabinet had also previously hinted that they can add or remove designated zones from the list, says Mayank Sawhney, director at MaxGrowth Consulting.
“In the future, more free zones can be added if they fulfil the criteria of designated zones such as custom control, fenced boundaries and controlled movement of goods going in and out of it,” he added.