Is VAT applied on Dubai Freezones?

The tax-free environment and the 100% ownership offered by Dubai Freezones are a major attraction for the international investors & expat businessmen. However, the initiation of Tax in Dubai and the UAE VAT implementation has created a confusion among businessmen.

The question is if VAT will be applicable on Freezones?

Freezones are an elected area fenced with security measures & customs controls. The freezones are monitored by a distinct authority. Yet, these designated freezones are part of the UAE territory, hence, the UAE Tax referred as VAT are applicable on Dubai freezones and on freezones across the UAE.

But, will VAT be applied to the freezones companies in the same way as applied to mainland companies?

No, the Value-Added-Tax in Dubai freezones will not be applied in the same manner. VAT will not be imposed on the freezones, as applied on non-freezone and mainland entities. Generally, VAT is imposed on goods and services supplied or imported into the UAE. And if the transaction takes place outside UAE, then there are no charges.

Hence, goods that arrive into a freezone from outside the UAE are not being treated as imported into the country and no VAT is charged on such arrival of goods.

A recent report from the ministry also stated that zero-rated VAT treatment will be provided to transfer or sale of such goods into a freezone. The report added that VAT will not be charged only if the goods are not released, used or altered in the process of transfer; and that the transfer is in accordance with the GCC Common Customs Law. Also, if the goods are not for consumption, the sale of such goods will be treated as outside the scope of the UAE taxation system.

On the other hand, if these imported goods are used or sold under the territory of the UAE, then VAT will be charged on these goods.

Nevertheless, proper bookkeeping and records need to be maintained to prove the Federal Tax Authority (FTA), that the transactions are in agreement. The FTA may also request the owner to provide a guarantee or reference for the transaction.

To maintain your records and process a systematic bookkeeping contact Shuraa Tax Consultants in Dubai. With experienced tax accountants and VAT consultants from across the globe, we provide you the best services and consultation. Just book yourself a free tax consultation in Dubai and get started!