INSIDE, OUTSIDE, OR EXEMPT?

Understanding VAT in UAE designated free zones is critical for compliance

- BY SAMEER MISHRA

The introduction of Value Added Tax (VAT) in the UAE in 2018 marked a significant shift in the country’s tax landscape.

For businesses, particularly those operating in free zones, the change brought new responsibilities that requires careful navigation.

For entrepreneurs or established businesses in these zones, understanding how VAT applies is essential for compliance and efficient operations.

Designated zones are defined areas that meet conditions set by the UAE's Federal Tax Authority (FTA). Although these zones are geographically within the UAE, they are treated as being outside the country for certain VAT purposes, specifically with regard to the supply and movement of goods. This classification creates unique scenarios that businesses must understand to ensure compliance.

What is VAT?

VAT is a general consumption tax applied to most goods and services within the UAE. By default, VAT applies throughout the country. However, designated zones are subject to exceptions, particularly when it comes to how goods are treated for tax purposes.

Goods moved into, out of, or within these zones can fall either inside or outside the scope of VAT, depending on the transaction’s nature.

Tax rules on supply of goods within designated zones