Designated Zone: What It Means And The VAT Impact It Has On Businesses

2 Mins read

UAE has been drawing investors from every part of the world, with the free zones being the hotbed of UAE investments. It is one of those few places where you can start freelancing as a non-citizen or resident with few requirements and friendly procedures. However, it is imperative you understand the different terms as well as how they are going to affect how you can conduct business in the UAE. An important aspect all freelancers in Dubai must understand before starting a business is how registering a company in different areas will affect the VAT obligation. A common term you will come across in the UAE is a “designated zone.”

What Does The Term Designated Zone Mean?

A designated zone in the UAE describes a region that is treated as if it is outside the UAE for the purpose of VAT following a decision by the cabinet. The area must meet several conditions to be considered as a designated zone.

  • The geographical area should be fenced with stringent security terms and customs controls to scrutinize the access and exit of people and commodities to and from the zone.
  • The area also needs to put in place measures to be followed in custody, storing, and processing of goods.
  • The person in charge should observe all the regulations set by the Authority.

Therefore, a free zone can be described as a designated zone if it meets the above conditions and other terms issued by the cabinet. When transacting in the area, you must follow the VAT rules as stipulated in the GCC Common Customs Law. You should ensure that your commodities are not used, changed, or released while in transit from one zone to another as that will attract VAT.

The VAT will be applied during the movement of merchandise from the designated zone to the UAE mainland or vice-versa. It will also be applicable in the supply of water and energy as well as in products for self-consumption and those used by a third party.

The VAT rule will not be applicable when the transportation of cargo is involving designated zones. It will also not apply if the movement of goods is overseas, including GCC countries, or from overseas to a designated zone. A freelancer in Dubai should further note that goods incorporated, attached, or those that form part of other goods as well as those used in the sale or manufacture of other goods within the region will not attract VAT.  

List of Designated Free Zones in the UAE

1. Ras AL Khaimah

  • RAK Airport Free Zone
  • RAK Free Trade Zone
  • RAK Maritime City Free Zone

2. Ajman

  • Ajman Free Zone

3. Fujairah

  • Fujairah Oil Industry Zone (FOIZ)
  • Fujairah Free Zone

4. Sharjah

  • Sharjah Airport International Free Zone
  • Hamriyah Free Zone

5. Umm Al Quwain

  • Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road
  • Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port

6. Dubai

  • Dubai Airport Free Zone
  • Free Zone Area in Al Qusais
  • Dubai Aviation City
  • Free Zone Area in Al Quoz
  • Dubai Textile City
  • Jebel Ali Free Zone (North-South)
  • DUCAMZ (Dubai Cars and Automotive Zone)

7. Abu Dhabi

  • Abu Dhabi Airport Free Zone
  • Khalifa Industrial Zone
  • Free Trade Zone of Khalifa Port

Wrap Up

Before choosing to start your business in a designated zone, you must understand the VAT application. Freelancers in the UAE who are willing to start a business in a designated zone should apply for a VAT as that will enable you to offer your services to local companies and clients.

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