Designated Zone
Specific areas designated by the FTA as being treated outside the UAE for VAT purposes on certain transactions.
What is a Designated Zone?
A Designated Zone is a specific free zone or area designated by the Federal Tax Authority (FTA) under Cabinet Decision No. 52 of 2017 as being outside the geographical territory of the UAE for VAT purposes. This designation allows certain supplies of goods and services to these zones to be treated as exports, qualifying for zero-rated VAT (0%).
Current Designated Zones
- • Jebel Ali Free Zone (JAFZA)
- • Dubai Airport Free Zone
- • Khalifa Port and Industrial Zone (KPIZ)
- • Abu Dhabi Airport Free Zone
- • Dubai Cars and Automotive Zone
- • Dubai Textile City
- • Customs bonded warehouses and duty-free shops
Note: The FTA may add or remove zones from this list. Always check the latest FTA guidance.
VAT Treatment
Zero-Rated Supplies
Supplies of goods and services to Designated Zones qualify for 0% VAT, similar to exports
Standard-Rated Supplies
Supplies from Designated Zones to UAE mainland are treated as imports subject to 5% VAT
Conditions for Zero-Rating
To qualify for 0% VAT when supplying to a Designated Zone:
- Goods: Must be transported to and located in the Designated Zone
- Services: Must be supplied to a person in the Designated Zone for business purposes there
- Documentation: Maintain proof that goods/services were delivered to the Designated Zone
- Commercial Evidence: Valid commercial documents showing the transaction details
Key Scenarios
Mainland to Designated Zone
Supply treated as export = 0% VAT. Supplier can recover input VAT.
Designated Zone to Mainland
Supply treated as import = 5% VAT payable by recipient (or at customs for goods).
Within Designated Zone
Generally outside scope of UAE VAT, but specific rules apply.
Designated Zone to Non-Designated Free Zone
Treated as domestic supply = 5% VAT applies.
Documentation Requirements
To support zero-rating claims, businesses must retain:
- • Proof of delivery to Designated Zone (delivery notes, shipping documents)
- • Commercial invoices and contracts
- • Evidence that goods remain in the Designated Zone
- • Customer's Designated Zone license or registration
Common Mistakes to Avoid
- Assuming all free zones are designated zones (many are not)
- Zero-rating supplies without proper documentation
- Failing to verify customer's Designated Zone status
- Not tracking goods movement between zones
- Incorrect VAT treatment when goods move to mainland
Related Terms
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