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What free zones in the UAE are exempt from VAT?

2018-08-21

When registering a company in the United Arab Emirates, an entrepreneur needs to know in advance the VAT rate in the UAE. At the same time there are free zones, which are exempt from the payment of value added tax.

How to apply tax

There are designated several free zones in the UAE. Companies that are registered in these zones can carry out commercial activities and trade products without paying taxes with other similar zones. At the same time, the supply of services will be taxed with value added tax. The rate is 5%, it is standard. In addition, the delivery of products from the free zones to the UAE and back will be taxed, the rate of which is 5%.

So, if the service provider and the recipient are in the designated zone, the delivery of the goods will not be subject to payment. Thus the goods or services should not be consumed in the designated zone. The rate for the supply of the product is 5%.

If the supplier is in the designated area and the recipient is on the inside of the United
Arab Emirates outside the designated area, the delivery of the goods will be taxed (VAT 5%), the supply of services is a 5% rate. The same conditions will apply if the recipient is on the designated zone, and the supplier is outside its limits.

If the supplier is in the designated zone and the recipient is a foreign country, the delivery of the goods is not taxed, the delivery of services is 0% rate, or it is not provided. If the supplier is a foreign country, and the recipient is located in the designated zone, the delivery of the goods is not taxed, and the reverse charge mechanism operates for the supply of services.

Features of VAT payment

There are some exceptions to the rules for paying taxes. Thus, water and other forms of energy that have been consumed within the zones will be taxed. In addition, companies must be registered for the purposes of value-added taxes, in the event that supplies that are subject to payment have reached the prescribed limit prescribed in the law.

Registration limit:

- Mandatory registration - the turnover reaches 102 180 dollars for the last year, or there is an expectation that the threshold will be exceeded within 30 days;
- Voluntary registration - turnover of 51 090 dollars for the last year, or it is predicted that the threshold values exceed 30 days.

In total, there are 20 zones that are free and declared as designated for VAT purposes. Three of them are in the emirate of Abu Dhabi, two in the emirate of Fujairah, seven in the emirate of Dubai, in the emirate of Sharjah there are two such zones, one in Ajman, two in Umm Al Quwain, in Ras Al Khaimah - three.