Designated Zones and Free Zones

Designated Zones and Free Zones

Designated Zones and Free Zones have special considerations under UAE tax laws.

Prerequisites

 

 

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 Cin7 Core 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.

Was this article helpful?

Have more questions? Submit a request