The UAE government has clarified the details of its law on ‘Designated Zones’ for the purpose of the applicability of Value Added Tax (VAT) on such areas, stating that such Zones mentioned in Cabinet Decision No. (59) of 2017 do meet the conditions stated in the decree on VAT passed last year.

The Ministry of Finance has clarified in a press release that a ‘Designated Zone’ is a specific fenced geographic area that has security measures and Customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area, and are listed in the Cabinet decision as Designated Zones, which differ from free zones in terms of definition and conditions.

Although Designated Zones are part of the UAE territory, the ministry affirmed, for implementation of VAT purposes, they are treated as being outside the UAE. VAT is imposed on goods and services supplied or imported in the UAE. This means that if a supply is treated as not taking place in the UAE, then UAE VAT should not be charged, with some exceptions noted.

The Finance Ministry further clarified that the place of supply is generally determined by looking at the location of the goods, activities or the parties to a transaction. Therefore, if the place of supply is in a Designated Zone (which is treated as being outside the UAE for VAT purposes), the supply may be outside the scope of VAT.

The VAT Executive Regulation [stated in Cabinet Decision No. (59) of 2017] provides that certain types of supplies that take place in the Designated Zones should be treated as if they actually take place in the UAE and are therefore subject to tax, that includes:

• any services provided
• water and all forms of energy
• goods sold for use or consumption

Goods that arrive into a Designated Zone from outside the UAE are not treated as imported into the UAE. Therefore, no VAT is charged on such arrival of the goods.

That said, a transfer or sale of goods into a Designated Zone from a place in the UAE which is not a Designated Zone is not an export for VAT purposes, and therefore will not give rise to zero-rated VAT treatment.

As for the transfer of Goods between Designated Zones, the ministry asserted that it will not be subject to VAT if both of the following conditions are met:

• the goods, or parts of the goods, are not released, used or altered during the transfer between the Designated Zones; and
• the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law.

Where goods are moved between Designated Zones, the FTA may request the owner of the goods to provide a guarantee in respect of the VAT in case the conditions for the movement of goods are not met.

Meanwhile, the sale of goods between Designated Zones will be treated as outside the scope of the UAE VAT, subject to those goods are not meant for consumption.

As per law, the following areas are Designated Zones in the UAE:

Designated Zones in Abu Dhabi:

• Free Trade Zone of Khalifa Port
• Abu Dhabi Airport Free Zone
• Khalifa Industrial Zone

Designated Zones in 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
• Dubai Airport Free Zone

Designated Zones in Sharjah:

• Hamriyah Free Zone
• Sharjah Airport International Free Zone

Designated Zones in Ajman:

• Ajman Free Zone

Designated Zones in Umm Al Quwain:

• Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
• Umm Al Quwain Free Trade Zone on Sheikh Mohamed Bin Zayed Road

Designated Zones in Ras Al Khaimah:

• RAK Free Trade Zone
• RAK Maritime City Free Zone
• RAK Airport Free Zone

Designated Zones in Fujairah:

• Fujairah Free Zone
• FOIZ (Fujairah Oil Industry Zone)