The executive regulations make clear how freezones, designated zones, and mainland areas will be treated under value-added tax (VAT).
Based on the conditions set out in the executive regulations, published recently by the Federal Tax Authority (FTA), only those UAE freezones with fenced areas, security measures and customs controls in place to monitor the entry and exit of individuals and movement of goods, will be treated as a designated zone, according to tax expert Amit Chib, managing partner of Haynes Path, a management consultancy.
“Based on this criterion, freezones offering services, and/or without physical controls for goods will be treated similar to any other UAE mainland company,” Chib said.
Chib added that it was “interesting to note that the purchase of goods by a UAE mainland company from a designated zone company will be treated as an import,” while sales to a designated zone company by a UAE mainland supplier will not be treated as an export and will be taxable.
“For services, there is no special VAT treatment for designated zones, they will be treated like any other UAE mainland company,” he said.
All transactions by companies inside designated zones, including importing, storing, and selling goods to countries outside the UAE, will not be covered by the UAE’s VAT law.