UAE has imposed VAT (Value Added Tax) at the rate of 5% from January 1, 2018, on import and supply of Goods and Services at each stage of production and distribution.
If a natural person or legal entity in the UAE, being an implementing State, anticipate that the total value of all taxable supplies or goods will exceed the mandatory registration threshold of AED 375,000 annually, the person or legal entity has to register for VAT with Federal Tax Authority, UAE. A Tax Registration Number or TRN is issued to each natural or legal person who applies for registration. This TRN has to be mentioned in all Tax Invoices issued by the natural or legal person. VAT return has to be filed at various intervals depending on the turnover of natural person or legal entity.
As per Article 45 of Federal Decree-Law No. (8) of 2017, a direct or indirect export of Goods or Services to outside the implementing States are subject to Zero rate tax. Article 50 explains the status of a Designated Zone within the UAE. It describes that a Designated Zone is treated as being outside the State or outside implementing States for the purposes of implementing VAT.
Goods that are imported into a designated free zone from outside the UAE, will not be treated as imported into the UAE for the purpose of VAT. Hence, no VAT is charged on such imports.
The transfer of Goods between Designated Zones shall not be subject to Tax if the following two conditions are met: (a). Where the Goods, or part thereof, are not released, and are not in any way used or altered during the transfer between the Designated Zones. (b). Where the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law.
The Place of supply of Services is considered to be inside the State if the place of supply is in the Designated Zone. Therefore, any kind of services rendered are subjected to VAT even if the the natural or legal person (company) is inside the Designated Zone.
As per Cabinet Decision No. (59) of 2017, the following 20 Freezones are identified as Designated Freezones.
Free Trade Zone of Khalifa Port
Abu Dhabi Airport Free Zone
Khalifa Industrial Zone
Dubai Cars and Automotive Zone (DUCAMZ)
Dubai Textile City
Free Zone Area in Al Quoz
Free Zone Area in Al Qusais
Dubai Aviation City
Umm Al Quwain
Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
Umm Al Quwain Free Trade Zone on Sheikh Mohammed bin Zayed Road
Ras Al Khaimah
RAK Maritime City Free Zone
RAK Airport Free Zone
Fujairah Oil Industry Zone (FOIZ)