Designated Zones and Free Zones have special considerations under UAE tax laws.
- Configure DEAR systems VAT compliance settings (required)
Table of Contents
What are Designated Zones and Free Zones
A Designated Zone is a specific area assigned to be outside the UAE for Value Added Tax (VAT) purposes. Even if Designated Zones are located inside the territory of the UAE, for VAT purposes, they are dealt with as being outside the UAE for trading with goods. However, Tax is applied to the goods when they are traded between the Designated Zone and the Mainland (United Arab Emirates).
Free Zones in the UAE have been designated primarily to boost international business. Within a free zone, firms can be completely owned by expatriates without the need for local partnership. Businesses in the free zones (which are not classified as designated zones) will be taxed at the usual VAT rates.
Supply in Designated Zones
If your Organisation is registered for VAT within a designated zone, your supply & demand will be different from that of a regular VAT-registered Organisation. You need to select if locations in your organisation are in a designated zone during setup. This is covered in DEAR systems VAT compliance.
Let's have a look at how your transactions will be affected based on your contact’s tax treatment:
- Sales Transactions in Designated Zones
- Purchase Transactions in Designated Zones
NOTE: The supply of services within a designated zone will have the same treatment as that of the mainland.
Sales Transactions in Designated Zones
Go through the below diagram to have a basic idea on how the tax treatment of your customers will affect your supply in designated zones.
|Customer Tax Rule||Location/Bins||Tax Rates|
|VAT Registered||UAE||Products (out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)|
|Non VAT Registered||UAE||Standard rate, Zero-rate, Exempt, Out of scope|
|GCC VAT Registered||UAE||Products (Out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)|
|GCC VAT Registered||GCC||Out of Scope|
|GCC Non-VAT Registered||UAE||Standard rate, Zero-rate, Exempt, Out of scope|
|GCC Non-VAT Registered||GCC||Out of scope|
|Non-GCC||-||Products (Out of scope), Services (Zero-rate)|
|VAT Registered - Designated Zones||UAE||Products (Out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)|
|Non-VAT Registered - Designated Zones||UAE||Products (Out of scope), Services (Standard rate, Zero-rate, exempt, Out of scope)|
Refer to the UAE Federal Tax Authority Guidelines for VAT Compliance in Designated Zones for detailed information.