Is VAT Applicable for Freezone companies in UAE? Freezones are the designated zones; they supply tax exemption and plenty of other facilities to boost the country’s business economy.
The Designated Zone is a VAT-free zone that’s considered outside the State of UAE for VAT. As a result, any transfer of products between Designated Zones, VAT will not be applicable. VAT is a value-added tax used on sales of products and services. However, not all designated zones are VAT free except
Identification of designated zones
According to UAE’s cabinet decision number 52, “A Designated Zone is a section specified by a Cabinet Decision as being a Designated Zone.” However, there are specific criteria to meet for a Designated Zone to be treated as outside the UAE territory for VAT reasons. These are as follows:
Is VAT Applicable for Freezone companies in UAE?
1. The Designated Zone must be a particular allocated geographic area.
2. The Designated Zone must have security protocols and Customs constraints in situ to check the entry and exit of individuals and movement of products to and from the Free Zone.
3. The Designated Zone must have internal protocols regarding storing and processing supplies within the Designated Zone.
4. The operator of the Designated Zone must befit the protocols embarked on by the FTA.
The designated zones, as listed by the cabinet decision №59, is as follows:
Abu Dhabi
Free Trade Zone of Khalifa Port
Abu Dhabi Airport Free Zone
Khalifa Industrial Zone
Al-Ain International Airport Free Zone
Al Burian International Airport Free Zone
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 CCit
Dubai Airport Free Zone
International Humanitarian City — Jebel Ali
Sharjah
Hamriyah Free Zone
Sharjah Airport International Free Zone
Ajman
Ajman Free Zone
Umm Al Quwain
Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
Free Trade Zone on Sheikh Mohammed Bin Zayed Road-Umm Al Quwain
Ras Al Khaimah
RAK Free Trade Zone
Maritime City Free Zone-RAK
RAK Airport Free Zone
Fujairah
Fujairah Free Zone
Oil Industry Zone (FOIZ)-Fujairah
Applicability of VAT on Designated zones
Under the standard VAT laws, the provision of products to a designated zone doesn’t apply to VAT because it is considered a supply from the side of UAE territory. However, if a supply is made to the designated zone to an individual who intends to use it privately will then apply to VAT rules as the supply will be considered inside the UAE territory.
Transfer of goods between the designated zones
The transfer of goods between the above mentioned designated zones are also exempted from VAT if these conditions are met:
- The goods subjected to transfer are not modified or used.
- The transfer is by the GCC Common Customs Law.
Here, it is pertinent to mention that importing goods from the designated zones to mainland UAE will be subjected to VAT.
Registration for VAT
Any business that reaches the threshold for UAE VAT registration must start preparing for the registration process. The threshold level is when the annual taxable supplies reach between Dhs 187,500 and Dhs 375,000. in addition, the process of VAT registration is as follows:
- Go to FTA Online Portal
- Sign up for a new account
- Start your registration process after successful sign-up
- Enter the required details and submit
If you don’t register for VAT in the UAE, what happens?
If a company operating in and out of a free zone in the UAE fails to register for VAT on time, the FTA will register the company from the date it should have started charging VAT. Punishment will be levied on any firm that fails to comply with VAT registration laws, and the business will be required to add the right VAT rate to all sales made after the retroactive date.
If your yearly turnover will exceed the threshold, you can seek the assistance of a regulated tax agent in the UAE. This is especially important if you don’t know when your company should register or if it has already done so.
Conclusion
Tax is applicable to certain designated ones under the required criteria, whereas the companies registered under the UAE VAT law are not subjected to any VAT. The designated free zones provide immense benefits to businesses such as;
exemption from hefty taxes and duties, corporate taxes, income taxes, and many more. However, a business must register with the UAE VAT portal if it reaches the desired threshold to reap the benefits of the free zones.