VAT Scope Relief on Three UAE Free Zoneskwsmedeveloper
You all must be aware of introduction of VAT in UAE and that five percent VAT will not be implemented on 20 designated zones in UAE which brought major relief and clarity for the companies operating in UAE free zones.
Now let us reveal you some more good news. In a recent announcement by UAE Federal Tax Authority (FTA), there is a new addition of three free zones to the list of designated zones which makes total number of designated zones to 23.
What is designated zone?
According to the Executive Regulations of UAE tax law,
“A designated zone is a specific fenced geographic area specified by Cabinet decision 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.”
- Although designated free zones are part of UAE territory, they will be treated as being outside of UAE for VAT purposes.
- VAT does not apply on designated free zones
- The transfer of goods between designated zones will be tax-free
List of Designated Zones
- Free Trade Zone of Khalifa Port
- Abu Dhabi Airport Free Zone
- Khalifa Industrial Zone
- 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
- Hamriyah Free Zone
- Sharjah Airport International Free Zone
- Ajman Free Zone
Umm Al Quwain:
- Umm Al Quwain FTZ in Ahmed Bin Rashid Port
- Umm Al Quwain FTZ in Sheikh Monhammed Bin Zayd Road
Ras Al Khaimah:
- RAK Free Trade Zone
- RAK Maritime City Free Zone
- RAK Airport Free Zone
- Fujairah Free Zone
- Fujairah Oil Industry Zone (FOIZ)
Newly Added Free Zones
The newly-added free zones are
- Al Ain International Airport Free Zone
- Al Bateen Executive Airport Free Zone in Abu Dhabi
- International Humanitarian City – Jebel Ali in Dubai.
The treatment of these free zones as designated zones was effective from June 18, 2018.
Free Zones in UAE
UAE is home to one of the highest number of free zones globally at 45. Another 10 free zones are also under construction. Dubai alone houses around 30 free zones. Dubai free zones are highly popular amongst foreign investors for new business setup as they offer huge benefits such as complete foreign ownership, no corporate/personal tax, no customs duty, complete repatriation of profits, ease of business setup and much more.
According to Central Bank of UAE data; in 2017, exports from UAE free zones amounted to AED 222.5 billion. That is growth of 6.6% from previous year. Total exports from UAE free zones contribute 19.5% to UAE’s total exports recorded in 2017.
Benefits Resulting From VAT Exemption
- All companies in UAE free zones can now avail VAT benefits for all goods that were not to be used within UAE since all transactions within designated zones for goods movement is tax free.
- More free zones can be added by the Cabinet as the law says that free zones with customs-restricted access will qualify for designated area list, so if any other free zone infrastructures are developed and meet the criterion, they can also be added in the designated zones.
- Companies from specific sectors are progressively looking at moving into one free zone as it helps them from cash-flow perspective because they are greatly involved in bilateral trade and dealings.
New addition of 3 free zones that are not under the scope of VAT is a huge relief for many companies in UAE free zones. This way they do not have to pay tax so they will be able to retain every penny they make from their business.