Designated Zones

What is a Designated Zone?
A designated zone is a place which is considered to be outside the UAE for tax purposes. VAT will not be levied on goods which are imported directly to a designated zone. Tax is applied on these goods only when they are out of the designated zones. Learn more about Designated Zones in the UAE.

What is a Free Zone?
Free Zones in VAT have been designated primarily to boost international business. In a free zone, firms can be completely owned by expatriates without the need for local partnership. Businesses in the free zones (which are not classified as designated zones) will be taxed at the usual VAT rates. Learn more about Free Zones.

Supply in Designated Zones

If you are a VAT registered person in a designated zone, your supply will be different from that of a regular VAT registered person. You need to select your organization as a designated zone while setting it up.

Here’s how your transactions will be affected based on your contact’s tax treatment:

Note:
The supply of services within a designated zone will have the same treatment as that of the mainland.

Sales Transactions in Designated Zones

Here’s how the tax treatment of your customers will affect your supply in designated zones.

Customer Tax Treatment Place of Supply Tax Rates
VAT Registered UAE Goods (out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)
Non VAT Registered UAE Standard rate, Zero-rate, Exempt, Out of scope
GCC VAT Registered UAE Goods (Out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)
GCC VAT Registered GCC Out of Scope
GCC Non VAT Registered UAE Standard rate, Zero-rate, Exempt, Out of scope
GCC Non VAT Registered GCC Out of scope
Non GCC - Goods (Out of scope), Services (Zero-rate)
VAT Registered - Designated Zones UAE Goods (Out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)
Non VAT Registered - Designated Zones UAE Goods (Out of scope), Services (Standard rate, Zero-rate, exempt, Out of scope)

Let’s understand each of these cases with the help of few examples.

Case 1

Customer Tax Treatment Place of Supply Tax Rates
VAT Registered UAE Goods (out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a VAT-registered customer in the UAE. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, the supply can have any one of the following taxes:

Case 2

Customer Tax Treatment Place of Supply Tax Rates
Non VAT Registered UAE Standard rate, Zero-rate, Exempt, Out of scope

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a customer in the UAE who is not registered for VAT. The supply takes place within the UAE.

In this case, the supply of goods and services can have any one of the following taxes:

In case the designated zone is unregistered, the customer has to pay VAT at the customs.

Case 3

Customer Tax Treatment Place of Supply Tax Rates
GCC VAT Registered UAE Goods (Out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a customer who is in any one of the GCC member countries and is registered for VAT in that country. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, the supply of can have any one of the following taxes:

Case 4

Customer Tax Treatment Place of Supply Tax Rates
GCC VAT Registered GCC Out of Scope

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a customer who is in any one of the GCC member countries and is registered for VAT in that particular country. The supply takes place within the particular GCC member country.

In this case, the supply of goods or services is out of the scope of VAT.

Case 5

Customer Tax Treatment Place of Supply Tax Rates
GCC Non VAT Registered UAE Standard rate, Zero-rate, Exempt, Out of scope

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a customer who is in any one of the GCC member countries and is not registered for VAT. The supply takes place in the UAE.

In this case, the supply of goods or services can have any one of the following taxes:

Case 6

Customer Tax Treatment Place of Supply Tax Rates
GCC Non VAT Registered GCC Out of scope

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a customer who is in any one of the GCC member countries and is not registered for VAT. The supply takes place within the particular GCC member country.

In this case, the supply of goods or services is out of the scope of VAT.

Case 7

Customer Tax Treatment Place of Supply Tax Rates
Non GCC - Goods (Out of scope), Services (Zero-rate)

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a customer who is outside any of the GCC member states.

In this case, the supply of goods is out of the scope of VAT. For services, the supply is zero-rated.

Case 8

Customer Tax Treatment Place of Supply Tax Rates
VAT Registered - Designated Zones UAE Goods (Out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a VAT-registered customer in a designated zone in the UAE. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, the supply can have any one of the following taxes:

Case 9

Customer Tax Treatment Place of Supply Tax Rates
Non VAT Registered - Designated Zones UAE Goods (Out of scope), Services (Standard rate, Zero-rate, exempt, Out of scope)

Let’s say you are registered for VAT in a designated zone in the UAE and sell goods or services to a customer who is in a designated zone in the UAE and is not registered for VAT. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, the supply can have any one of the following taxes:

Sale in a designated zone for non-business purposes is taxed at the standard rate.


Purchase Transactions in Designated Zones

Here’s how the tax treatment of your vendors will affect your supply in designated zones.

Vendor Tax Treatment Place of Supply Tax Rates
VAT Registered UAE Standard rate, Zero-rate, Exempt, Out of scope
Non VAT Registered UAE Out of scope
GCC VAT Registered UAE Goods (Out of scope), Services (Reverse charge, Standard, Zero-rate)
GCC VAT Registered GCC Exempt
GCC Non VAT Registered UAE Goods (Out of scope), Services (Reverse charge, Standard, Zero-rate)
GCC Non VAT Registered GCC Out of scope
Non GCC - Goods (Out of scope), Services (Reverse charge, Standard, Zero-rate)
VAT Registered - Designated Zones UAE Goods (Out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)
Non VAT Registered - Designated Zones UAE Out of scope

Case 1

Vendor Tax Treatment Place of Supply Tax Rates
VAT Registered UAE Standard rate, Zero-rate, Exempt, Out of scope

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a VAT-registered vendor in the UAE. The supply takes place within the UAE.

In this case, the supply of goods and services can have any one of the following taxes:

Case 2

Vendor Tax Treatment Place of Supply Tax Rates
Non VAT Registered UAE Out of scope

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor in the UAE who is not registered for VAT. The supply takes place within the UAE.

In this case, the supply of goods or services is out of the scope of VAT.

Case 3

Vendor Tax Treatment Place of Supply Tax Rates
GCC VAT Registered UAE Goods (Out of scope), Services (Reverse charge, Standard, Zero-rate)

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in any one of the GCC member countries and is registered for VAT in that particular country. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, reverse charge is applied and they can have any one of the following taxes:

Case 4

Vendor Tax Treatment Place of Supply Tax Rates
GCC Non VAT Registered GCC Exempt

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in any one of the GCC member countries and is not registered for VAT. The supply takes place within the GCC.

In this case, the supply of goods or services is exempted from tax. However, if you want to apply tax on the supply, you would need to create a new tax in Zoho Books for the relevant GCC member country and apply it in the appropriate transaction.

Case 5

Vendor Tax Treatment Place of Supply Tax Rates
GCC Non VAT Registered UAE Goods (Out of scope), Services (Reverse charge, Standard, Zero-rate)

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in any one of the GCC member countries and is not registered for VAT. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, reverse charge is applied and they can have any one of the following taxes:

Case 6

Vendor Tax Treatment Place of Supply Tax Rates
GCC Non VAT Registered GCC Out of scope

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in any one of the GCC member countries other than the UAE and is not registered for VAT. The supply takes place within the GCC.

In this case, the supply of goods or services is out of the scope of VAT.

Case 7

Vendor Tax Treatment Place of Supply Tax Rates
Non GCC - Goods (Out of scope), Services (Reverse charge, Standard, Zero-rate)

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is outside any of the GCC member countries.

In this case, the supply of goods is out of the scope of VAT. For services, reverse charge is applied and they can have any one of the following taxes:

Case 8

Vendor Tax Treatment Place of Supply Tax Rates
VAT Registered - Designated Zones UAE Goods (Out of scope), Services (Standard rate, Zero-rate, Exempt, Out of scope)

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a VAT-registered vendor in a designated zone in the UAE. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, the supply can have any one of the following taxes:

Case 9

Vendor Tax Treatment Place of Supply Tax Rates
Non VAT Registered - Designated Zones UAE Out of scope

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in a designated zone in the UAE and is not registered for VAT. The supply takes place within the UAE.

In this case, the supply of goods or services is out of the scope of VAT.


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VAT Filing >

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