VAT Computation on Goods Supplied from Designated Zone in UAE

A Designated Zone will be treated as being outside the State and outside the Implementing States for the purpose of UAE VAT. As a result, this requires a differential VAT computation on making a supply from the Designated Zone. In this article, we will understand the VAT treatment of goods supplied from the Designated Zone under following scenarios:

• 1. Goods supplied from Designated Zone to another Designated Zone
• 2. Goods supplied from Designated Zone to Mainland
• 3. Goods supplied from Designated Zone to outside the UAE

Goods supplied from Designated Zone to another Designated Zone

Supply of goods between Designated Zones will not attract VAT. For example, Rose Traders located in Jebel Ali Free Zone supplied goods to A-One Traders, Dubai Airport Free Zone.

In the above illustration, Jebel Ali Free Zone and Dubai Airport Free Zone are Designated Zones. The supply of goods from Rose Traders to A-one Traders will be VAT free since the supply is between Designated Zones.

Goods supplied from Designated Zone to Mainland

For the purpose of the VAT, a Designated Zone will be treated as being outside the State. As the result, the supply of goods from the Designated Zone to the supplier located in the mainland (inside the UAE State) will be considered as import. The supplier who is buying goods from the Designated Zone will have to pay VAT on a reverse charge basis, similar to import of goods from other countries.

For example, Rose Traders located in Jebel Ali Free Zone supplied goods to Abdul Traders, located in Dubai mainland.

In the above illustration, goods are supplied from Jebel Ali Free Zone (Designated Zone) to Dubai (mainland). The supply of goods from Rose Traders to Abdul Traders will attract VAT at 5% which needs to be paid on a reverse charge basis. Abdul Traders need to pay VAT on RCM basis which is similar to the import of goods from other countries.

Goods supplied from Designated Zone to outside the UAE State

Goods supplied from the Designated Zone to outside the UAE State will be considered as exports and will be zero-rated supplies.

For example, Rose Traders located in Jebel Ali Free Zone supplied goods to National Traders, located in India.

In the above illustration, goods are supplied from Jebel Ali Free Zone (Designated Zone) to India. The supply of goods from Rose Traders to National Traders will be considered as exports and attract VAT at 0%.

Conclusion

The above-discussed scenarios are only applicable for supply of goods. In case of supply of services, the treatment of VAT is different.