Cabinet decision No. (59) of 2017 on the Executive Regulations of the Federal Decree-Law No. (8) of 2017 (UAE VAT Law) has provided for 20 Designated Freezones in the UAE (as listed below), which will be treated for VAT purposes as being outside the UAE.
Under the UAE VAT Law and Executive Regulations, a Designated Zone is defined as “a specific, fenced geographic area which has security measures and customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area.”
Subject to the below exceptions, in general, if a supply is deemed to have taken place in a designated zone, VAT should not be charged. The place of supply is generally determined by looking at the location of the goods, activities or parties to a transaction. The rules are as follows:
- Goods that arrive into a Designated Zone from outside the UAE are not treated as imported into the UAE, and no VAT should be charged on the arrival of such goods; and
- A transfer or sale of goods from a place in the UAE which isn’t a Designated Zone into a Designated Zone is not an export for VAT purposes, and therefore will not give rise to zero-rated VAT treatment.
The transfer of goods between Designated Zones will not be subject to VAT, as stated in Article (51) of the VAT law, provided both of the following conditions are met:
- The goods (or part of the goods) are not released, used, or altered during the transfer between Designated Zones; and
- The transfer is in accordance with the rules for customs suspension pursuant to GCC Common Customs Law.
The Federal Tax Authority may also request that, where goods are moved between Designated Zones, the owner of the goods provides a guarantee in respect of the VAT in case the conditions outlined above are not met.
However, there are exceptions within the VAT Executive Regulations that state that certain types of supplies taking place in the Designated Zones are to be treated as if they actually took place within the UAE, and are therefore subject to VAT. These supplies include:
- Any services provided;
- Water and all forms of energy; and
- Goods sold for use or consumption.
Abu Dhabi: Free Trade Zone of Khalifa Port; Abu Dhabi Airport Free Zone; and Khalifa Industrial Zone.
Dubai: Jebel Ali Free Zone (North-South); Dubai Cars and Automotive Zone (Ducamz); Dubai Textile City; Free Zone Area in Al Quoz; Free Zone Area in Al Qusais; Dubai Aviation City; and Dubai Airport Free Zone.
Sharjah: Hamriyah Free Zone; and Sharjah Airport International Free Zone.
Ajman: Ajman Free Zone.
Umm Al Quwain: Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port; and Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road.
Ras Al Khaimah: RAK Free Trade Zone; RAK Maritime City Free Zone; and RAK Airport Free Zone.
Fujairah: Fujairah Free Zone; and Fujairah Oil Industry Zone (FOIZ).