A Quick Recap
Free zones are certain set geographic areas with security measures in place to watch the movement of goods and people. VAT applies throughout the UAE but not designated free zones, a specific area assigned to be outside the UAE for Value Added Tax (VAT) purposes. According to the document published by the UAE’s Federal Tax Authority (FTA) there are 23 or so designated free zones all across the UAE where VAT generally does not apply as they are not considered inside of the UAE for VAT reasons. And the transfer of goods between designated zones are tax free.
A VAT Guide on Designated Zones (VATGDZ1) published by the Federal Tax Authority (FTA’) on 29 July 2018 explains about a Free Zone’s specific characteristics and how it can be distinguished as a Designated Zone for VAT purposes. In addition, the detailed information and example in the guide also illustrate the practical application of Article 51 of the UAE VAT Executive Regulations in order to aid businesses operating in designated zones.
FTA’s New Amendment
On Saturday, October 30, 2021, the FTA announced an amendment done to Article 51 of Cabinet Decision No. (52) of 2017 on the Executive Regulation of Federal Decree-Law No. (8) of 2017 on value-added tax (VAT) according to which tax registrants are permitted to avoid being subject to VAT double taxation for the supply of goods in designated zones for VAT purposes.
In an effort to raise tax awareness among business sectors and ensure the best tax compliance rates, Public Clarifications pertaining to the Cabinet decision to amend Article 51) has been made available on the authority’s website by FTA. As per the document the supply of goods in the Designated Zone must be transacted outside the scope of UAE VAT, if goods in question are not consumed inside the country, or in the case that the goods are consumed outside the Designated Zone, and provided that evidence is obtained and retained proving that the goods were delivered to a place outside the UAE or that VAT was paid on the import of these goods from the Designated Zone to the UAE. Shipping and delivery services of Qualifying Goods are also outside the scope of UAE VAT if they are supplied by the same supplier of the goods, under certain conditions, including the supplier being a non-resident who is not registered for VAT in the UAE.
The new law that came into effect on October 30,2021, keeps tax-registered businesses functioning in the designated zones from paying VAT twice. As clear as day, the purpose behind making the amendment in the tax treatment for the supply of goods in Designated Zones and related shipping or delivery services is to avoid VAT Double Taxation on supplied goods in the Designated Zones and simplify procedures to support non-resident suppliers operating in the Designated Zones, as these supplies will be regarded – under specific conditions – outside the scope of tax, that being the case, the supplier is not obligated to tax register their business.
Transfer of Goods in Designated Free Zones
Goods may also be moved between designated zones without being subject to tax provided the goods being transferred are not consumed or altered throughout the journey and the transfer is performed in accord with the rules for customs suspension per GCC Common Customs Law. In the event of not meeting the conditions for the transfer between designated zones, the FTA may ask for a guarantee equivalent to the tax liability of the goods to be transferred. Furthermore, the movement or supply of goods into a designated zone from inside the UAE will not be treated as an export of the goods, and will not receive the same zero-rating like exports outside the GCC.
Free zones in Dubai are an amazing opportunity for business formation. To grab your opportunity contact us today. Our Dubai business advisors are happy to help you set up your Dubai free zone company right from scratch! From naming and registering your business to applying for your business licence to managing accounting & bookkeeping services to audit & taxation to finding distributors, with us by your side you don’t have to worry about any paperwork, delays in applications, mistakes in running business and fines for any kind of non-compliance. Our VAT specialists also help you and your finance professionals stay up-to-date on VAT laws to stay VAT compliant. Feel free to schedule an appointment with us for free consultancy.