VAT implication on Mainland and Free zones in UAE

November 16, 2022Dated:  | |

Free Zone

Free zones are economic areas where goods and services can be traded with 100% foreign ownership. Major peculiarities of free zones are:

  • Attracts 0% tax rates
  • Preferential customs duty rates
  • 100% import and export tax exemption

One of the obstacles to free zone companies is the prohibition of direct trade within the local market of UAE. Offshore companies can appoint a distributor who can offer the goods and services to the local markets on the agents will get a fee in return.

  • Designated Zones

Certain free zones listed in the cabinet decision and meets some conditions specified in the cabinet decisions are called Designated Zones. For VAT purposes Designated Zones are considered to be outside the UAE territory for the VAT purpose. Any supplies between Designated Zones will not attract VAT.

Examples of Designated Freestones are JAFZA, DAFZA, RAK, Free Trade Zones, etc.

Conditions for Designated Zones;

  • The zone should be within a specific fenced area.
  • The zones should have security measures and customs control over the movement of individuals and goods from and to the zones.
  • The zone should have well-defined internal procedures for the storing, retrieving, and processing of goods within the zones.
  • The operators of the Designated Zones should comply with rules and regulations set up by the Authority.

Mainland

Mainland in UAE means the locations outside the Free Zone area.

A Mainland company is a company which is registered in one of the DED (Department of Economic Development) of UAE which will provide a license to start doing business in UAE.

Types of mainland companies;

  1. Joint Liability Company
  2. Simple Limited Liability Partnership Company
  3. Limited Liability Company (LLC)
  4. Public Joint Stock Company
  5. Private Joint Stock Company

VAT Implications

 ZonesGoods or ServicesFromToTaxability
1Designated Free zoneGoodsDesignated ZoneDesignated ZoneNo VAT
   Designated ZoneNon-Designated Free zoneVAT @ 5%
   Designated ZoneMainlandRCM
   Designated ZoneTo other countriesOut of Scope
2Non Designated Free zoneGoodsNon-Designated ZoneNon Designated ZoneVAT @ 5%
   Non Designated ZoneDesignated Free zoneVAT @ 5%
   Non Designated ZoneMainlandRCM
   Non Designated ZoneTo other countriesZero Rated
3MainlandGoodsMainlandMainlandVAT @ 5%
   MainlandDesignated Free zoneVAT @ 5%
   MainlandNon Designated Free zoneVAT @ 5%
   MainlandTo other countriesZero Rated
4From Other CountriesGoodsFrom Other CountriesDesignated ZoneOut of Scope
   From Other CountriesNon-Designated ZoneRCM
   From Other CountriesMainlandRCM

Why Flying Colour?

According to the requirements of the Commercial Companies Law, all VAT-registered companies must have their financial audits done by a Chartered Accountant who is registered with the Ministry of Finance. A professional tax accountant can ensure that everything is in order, without missing anything, to meet all requirements so that the organization does not attract negative attention from FTA. Flying Colour Tax Consultant LLC, provides audit assistance in resolving tax issues, as auditors can make concrete suggestions for improving the company based on the findings of their records. Additionally, we partner with over 18 agents who are authorized to conduct audits in various jurisdictions, depending on the needs of our clients. Our experts analyze, identify and resolve your business and tax issues. We promise quality and timely support all year round. We provide quality, hassle-free services including Bookkeeping Services, Financial Advisory Services, Consulting Services, Company Registration For VAT in UAE, VAT return filing, Audit assistance, and a lot more.

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