•♦ It is an area specified by a Cabinet Decision as being a “Designated Zone ‘’
•♦ It must be a specific fenced geographic area
•♦ It must have security measures and Customs controls in place to monitor the entry and exit of individuals and movement of goods to and from the Designated Zone
•♦ It must have internal procedures regarding the method of keeping, storing and processing of goods within the  Designated Zone
• ♦ The operator of the Designated Zone must comply with the procedures set out by the F.T.A



• ♦ Only where a Designated Zone meets all the above tests it can be treated as outside the U.A.E for VAT purposes
•♦  Free Zones listed by the Cabinet Decision as being a Designated Zone can be found under the Legislation tab on the F.T.A website (



•♦  Since the place of supply for goods generally follows the location of the goods, a supply of goods within a Designated Zone is treated as made outside the U.A.E
•♦  Where a supply of goods is made within a Designated Zone to a person to be consumed by him or another person – in these situations, the place of supply will be treated in the U.A.E and VAT will be applicable under the normal rules
• ♦ VAT is applicable on supply of services



1. Transfers from Outside the U.A.E

• ♦ It would be treated as taking place outside the U.A.E
• ♦ No U.A.E VAT would be charged on such movement or supply


2. Transfers from Mainland U.A.E

•♦ It will not be considered to be an export of goods from the U.A.E
•♦ Such movements and supplies are treated as local movements / supplies
•♦ U.A.E VAT will be charged


3. Transfers between Designated Zones

•♦  It will be treated as outside the scope of VAT subject to the following two conditions being met :
⇒ The goods, either in part or in their entirety are not released into circulation, nor used or altered in any way during the transfer between the Designated Zones; and
 ⇒The transfer for the goods is undertaken in accordance with the rules for Customs suspension per the GCC Common Customs Law


Where goods are moved between Designated Zones, the F.T.A may require the owner of the goods to provide a financial guarantee for the payment of VAT, which that person may become liable for should the conditions for movement of the goods not be met



• ♦ A movement of goods from a Designated Zone into the mainland U.A.E is treated as an import of goods into the U.A.E
•♦  Import VAT is payable by the importer of the goods
• ♦ Where a VAT registered person has incurred VAT on purchase of goods within a Designated Zone and then again on import of the same goods from the Designated Zone into the mainland, the VAT registered person will be able to recover VAT incurred on the importation of the goods into the mainland in full on its tax return.
•♦ The importer is required to retain evidence of the VAT incurred in respect of the purchase and import.



Goods which are located in a Designated Zone on which the owner has not paid VAT will be treated as imported into the U.A.E where:
• ♦ The goods are consumed by the owner, unless the goods are incorporated into, attached to or otherwise form part of or are used in the production of another good located in a Designated Zone and that other good is not itself consumed or
• ♦ The goods are unaccounted for



•♦ Supplies of water or any form of energy are supplies of goods
•♦ Supplies of other goods within Designated Zones, such supplies may be treated as being outside the scope of the U.A.E if they meet conditions
•♦ Where water or energy is supplied for consumption, then the supply is subject to the normal VAT treatment
•♦ Suppliers of water and energy shall charge VAT without the need to distinguish between the potential uses for water and energy



•♦ Supplies of real estate, which include the sale and lease of real estate, are treated as supplies of goods
•♦ The place of supply of such supplies is where the real estate is located
•♦ Supplies of real estate made within Designated Zones are outside the scope of VAT
•♦ Raw materials purchased within a Designated Zone for the purpose of constructing real estate in the Designated Zone are also outside the scope of VAT
•♦ Where real estate is not supplied by way of sale or a lease, it is a supply of services related to real estate
•♦ Supplies of services related to real estate will be taxable even if supplied within a Designated Zone



•♦ A business established within a Designated Zone can form a tax group with an onshore company or another Designated Zone company subject to meeting the normal control criteria.
•♦ Supplies between members is disregarded for VAT purposes, and it will be joint and several liability of the members of the tax group
•♦ Where a supply of goods between the tax group members results in the goods being moved from a Designated Zone into the U.A.E mainland, this importation of the goods would trigger the obligation to pay import VAT



•♦ A single entity may have a branch or head office located in a Designated Zone and a branch or head office located in the U.A.E mainland
•♦ Supplies between the head office and the branch, are treated as intra -entity supplies for VAT purposes and therefore disregarded.




•♦ If a business makes only supplies which are liable to VAT, it should be able to recover its VAT on expenses (input tax) in full
•♦ Where the business makes supplies which do not give right to the VAT recovery (e.g. exempt supplies), the business is unable to recover VAT on expenses directly attributable to making such supplies
•♦ Where an expense relates to both supplies that give right to the VAT recovery and those that do not, the business would be required to apportion the input tax in order to identify the recoverable part.
In order to recover any VAT under the normal VAT rules, the businesses must be registered for VAT with the F.T.A