VAT on Free Zones in UAE – Dubai

Free Zone is a term for free trade zones that encourage foreign ownership of businesses. Businesses in Free Zones must follow the rules set by the Free Zone Authority to do business in this area. Under UAE law, certain Free zones are known as “designated zones.” According to Article 51 of the Executive Regulations, the following meet the description of marked zones: 

• A particular geographic region that is enclosed and secured.
• Security measures and customs rules are in place to keep track of who comes and goes and what moves in and out of the area.
• It has internal rules about how things should be kept, stored, and worked on in the area.

• The person in charge of the Designated Zone must follow the rules set by the FZ Authority.

Therefore, any Free zone that satisfies the aforementioned requirements and is listed on the cabinet’s list will be considered a Designated zone. 

Examples of designated zone: Jebel Ali Free Zone, Dubai Airport Free Zone in Dubai. RAK Free Trade Zone in Ras al Khaimah. (pl note that list is not exhaustive)  

VAT For Freezone Companies

Some people think that only limited companies can sign up for VAT in the UAE. Any business that meets the minimum requirement for VAT registration in the UAE must go through the FTA’s VAT registration process. A free zone company in the UAE can register independently if it makes between AED 187,500 and AED 375,000. 

Value-Added Tax, or VAT, is a secondary tax that is put on goods and services in UAE.  Products and services are charged VAT at one of three different rates. 

• Standard VAT, which is 5%. 
• Zero percent VAT 
• Tax-exempt. 

Difference between Tax Exempt and Zero-Rated VAT

The same thing is not the same as being free from VAT. Goods that are subject to VAT but don’t charge buyers VAT are called “zero-rated.” Businesses’ VAT accounts keep track of taxable sales of things with no tax, and these sales have to be reported on the business’ VAT return. This means that a business can claim VAT on expenses and purchases used for taxable sales with no tax on them as “input tax.” 

Goods and services free from VAT are not taxed because they are not covered by VAT like exempt or out-of-scope supplies. A business’s taxable revenue does not include these sales of protected goods or services. You can’t get VAT back if your business buys things free from VAT. In either case, don’t add VAT to the prices of things and services. But something with a zero per cent tax rate is taxed. Regarding the registration level, the sale of a zero-rated item counts as a taxable sale; just like a sale that is subject to 5% or standard rate VAT.

Freezone Companies in accordance with VAT

Businesses in the marked /designated zone follow the same rules as businesses in non-le labelled areas. The UAE VAT Law says that companies in free zones must register for VAT as per qualification. They can also sign up for VAT under the method for groups. According to the rule for implementing VAT, there is no tax on moving taxable things between desiganted zones. With this rule, you must: 

• So, Goods are bought and sold, and sometimes they are sold again.
• Furthermore, goods that are associated with or connected to another product within the same free zone area; Provided that the other product is not intended for consumption within the designated zone.
• Goods transported to a specific designated zone for use in the manufacturing of other products; Without being intended for consumption within that same designated zone.
• Some of the exceptions are:
• Consumption-based tax / VAT at a standard rate for all things sold in the designated zones.
• VAT will be applied to the cost of energy within the zones.
• Designated zone companies if taxable sales ceiling limit goes up the requirement, they must register up for VAT. 

When should a business in a Free Zone in UAE start charging VAT?

If a UAE Freezone company’s sales hit the level, they must opt TRN number and should charge VAT on sales. If you go over the limit in thirty days, you also have to let the UAE tax authorities know. 

What happens if a company does not register for VAT?

If a company that works in and out of a free zone in the UAE doesn’t register for VAT in time though required as per law, the FTA will register the business from the date it should have been registered for VAT. So, Businesses failing to comply with VAT registration rules will receive fines and must retroactively apply the correct VAT rate to all past sales. If your yearly sales will hit the threshold, you can hire a licenced tax agent in the UAE to help you. This is very important if you don’t know when your business needs to be registered or if it has already hit the required size.   

Why is it important for Free Zone Companies to have a tax audit and tax consultation?

Designated free zones offer numerous advantages to companies, including exemptions from VAT on specific transactions and the ability for foreign investors to maintain 100% ownership. it’s important for tax services to make sure that: 

• One can adhere to tax laws and VAT regulations.
• So, Keeping the financial documents and accounting system up to date
• Auditing services are essential for generating the necessary audit reports that businesses must submit as required by authorities.
• To keep track of things going from the mainland and to designated free zone and back. 

VAT Registration in freezone with Shuraa Tax

We hope you understand what a Designated Zone in UAE is now. In the UAE, it’s important to follow the VAT rules. Check out VAT compliance in marked zones if you want to learn more. Contact us if your designated zone company in the United Arab Emirates needs help with VAT registration and VAT return filing. Our Dubai business setup advisors and finance & tax professionals not only help business owners set up their companies in mainland, free zone, and overseas areas, but they also help them get their in-house finance teams ready for accounts reporting, auditing, UAE tax support like VAT, Corporate tax, Excise Tax, Tax Residency Certification.  Our qualified tax team of advisors and UAE tax agents assist businesses to be UAE tax Complient and to have effective documentation which is required by UAE authority.

For any UAE Tax query pl contact us on +971 50 891 2062, email info@shuraatax.com.