FTA Releases List of Designated Zones on VAT

January 2018

The Federal Tax Authority has issued Cabinet Decision no. 59 of 2017 on Designated Zones (“Cabinet Decision”) for the purposes of Federal Law no. 8 of 2017 on Value Added Tax (“VAT Law”).

Art. 50 of the VAT Law had initially made references to designated zones, and Art. 51 of the Executive Regulations to the VAT Law had included requirements for designated zones, and referred to the Cabinet Decision which had not yet been issued until now.

The Cabinet Decision has specified the designated zones to be the following:

1) Abu Dhabi

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

2) 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

3) Sharjah

Hamriyah Free Zone
Sharjah Airport International Free Zone

4) Ajman

Ajman Free Zone

5) Umm Al Quwain

Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
Umm Al Quwain Free Trade Zone on Shaikh Mohammad Bin Zayed Road

6) Ras Al Khaimah

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

7) Fujairah

Fujairah Free Zone
FOIZ (Fujairah Oil Industry Zone)

The UAE Cabinet has the authority to amend the list of designated zones. Once again, it is important to consider all the rules for the designated zones which are stipulated in the Executive Regulations. The transfer of goods between the designated zones shall not be subject to tax if the following conditions are met:

The goods (or any part thereof) are not released and are not used in any way or altered during the transfer between the designated zones
The transfer is undertaken in accordance with the rules for customs suspension according to the GCC Common Customs Law

The relevant authorities may require the owner of the goods to provide a financial guarantee for the payment of tax should the conditions for the movement of goods not be met in accordance with the VAT Law and Executive Regulations.

In the event the supply of goods made within a designated zone to a person to be used/consumed by him or a third person, then the place of supply shall be considered the state, and therefore subject to VAT. Certain conditions will apply.

Furthermore, it is important to note that Art. 6 of the Executive Regulations indicates that the supply of services within the designated zones shall be considered in the state, and therefore subject to VAT. Consequently, any businesses offering their services in the above mentioned designated zones shall account for VAT, as any other onshore businesses would.

Contributed by:

Sarra AlSamarrai, associate, Fichte & Co Legal