What VAT implications on the Mainland and Free Zones in the UAE?
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 the 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 Free Zones 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 zone.
- The operators of the Designated Zones should comply with the rules and regulations set up by the Authority.
Mainland
Mainland in the 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 the UAE, which will provide a license to start doing business in UAE.
Types of mainland companies;
- Joint Liability Company
- Simple Limited Liability Partnership Company
- Limited Liability Company (LLC)
- Public Joint Stock Company
- Private Joint Stock Company
VAT Implications
| Zones | Goods or Services | From | To | Taxability | |
| 1 | Designated Free Zone | Goods | Designated Zone | Designated Zone | No VAT |
| Designated Zone | Non-Designated Free Zone | VAT @ 5% | |||
| Designated Zone | Mainland | RCM | |||
| Designated Zone | To other countries | Out of Scope | |||
| 2 | Non Designated Free zone | Goods | Non-Designated Zone | Non-Designated Zone | VAT @ 5% |
| Non-Designated Zone | Designated Free Zone | VAT @ 5% | |||
| Non-Designated Zone | Mainland | RCM | |||
| Non-Designated Zone | To other countries | Zero Rated | |||
| 3 | Mainland | Goods | Mainland | Mainland | VAT @ 5% |
| Mainland | Designated Free Zone | VAT @ 5% | |||
| Mainland | Non Designated Free zone | VAT @ 5% | |||
| Mainland | To other countries | Zero Rated | |||
| 4 | From Other Countries | Goods | From Other Countries | Designated Zone | Out of Scope |
| From Other Countries | Non-Designated Zone | RCM | |||
| From Other Countries | Mainland | RCM |
Why does Flying Colour Tax Consulting help?
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 authorised to conduct audits in various jurisdictions, depending on the needs of our clients. Our experts analyse, 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.
To learn more about VAT implication on Mainland and Free zones in UAE, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.