VAT on Goods & Services supplied from Designated Zone in UAE

A Designated Zone is a specific region in the UAE that is treated as outside the implementing States for the VAT purpose. Since these zones are out of the purview of the VAT UAE, the computation of VAT on the supplies made from a Designated Zone requires a different mechanism.

VAT applicability to services supplied from a Designated Zone in the UAE is slightly different from the supply of goods because the place of supply for such services is treated to be in the UAE even if it is a designated zone.

At present, there are 20 Designated Zones in the UAE out of the total 45 free zones. A free zone and a designated zone is not necessarily the same thing for the purpose of the VAT. This article explains the VAT rules for goods and services supplied from a UAE Designated Zone.

VAT on Supply of Goods from one Designated Zone to another

As per the UAE VAT regulations, there is no VAT on the supply of goods from one Designated Zone to another in the UAE. However, one must make sure that both the sender and receiver are located in the Designated Zones in the UAE.

Let’s understand with an example:

Salim from Dubai Aviation City makes a supply of goods to Rehman in Dubai Cars and Automotive Zone (Ducamz). Since both the locations are designated zones, the supply will be treated free of the VAT.

VAT on Supply of Services from one Designated Zone to another

Supply of services from a Designated Zone to another Designated Zone in the UAE is taxable at 5% VAT. A Designated Zone is considered to be located within the UAE State for the purpose of VAT on services.

So, if Salim from Dubai Aviation City makes a supply of services to Rehman in Dubai Cars and Automotive Zone (Ducamz),  a 5% VAT will be applicable to these supplies.

VAT on Supply of Goods from a Designated Zone to a Non-Designated Zone in UAE

The supply of taxable goods from a Designated Zone to a mainland zone (inside the UAE) will be treated as an import and attract VAT. Since the Designated Zones are free from VAT, the tax on such supplies will be paid by the receiver, who is importing goods from the Designated Zone, on a reverse charge basis, same as VAT on imports.

Example:

Salim from Dubai Aviation City makes a supply of goods to Rehan in Abu Dhabi (mainland). Since Rehan is located in a VAT zone, the supply will attract VAT at the standard rate of 5% which will be paid by Rehan on a reverse charge basis while filing their tax returns.

VAT on Supply of Services from a Designated Zone to a Non-Designated Zone in UAE

When a seller from a UAE Designated Zone supplies a service to a receiver in the mainland UAE, such supplies are taxable at 5%.

So, when Salim from Dubai Aviation City makes a supply of services to Rehan in Abu Dhabi (mainland), VAT at 5% shall be levied on these supplies.
VAT on Supply of Goods from a Designated Zone to Outside the UAE

A trader making supplies from a UAE Designated Zone to outside the UAE State will be treated under the standard VAT rules. Such supplies will be treated as exports and will be considered zero-rated for the VAT purpose.

Example:

Salim from Dubai Aviation City makes a supply of Goods to Amit in India. Since this is an export supply, VAT is applicable at 0% on it.

VAT on Supply of Services from a Designated Zone to Outside the UAE

Supply of services from a UAE Designated Zone to outside the UAE State (to another country) are treated as exports and will be taxed at the zero rate.

So, when Salim from Dubai Aviation City makes a supply of services to Amit in India, VAT is applicable at 0% on this supply.

The article clearly explains how is VAT applied to various supplies of goods and services originated from a Designated Zone. For more details, read our article VAT on Designated Zones in UAE.

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