A VAT Guide for Services Received in UAE Designated Zones

Free zones have traditionally been excluded from the territorial scope of the UAE’s VAT rules. Only those free zones mentioned in a Cabinet Decision are eligible for preferential VAT treatment, according to UAE VAT legislation. Designated Zones are such free zones, and enterprises must be aware of the VAT treatment of services obtained in them before engaging in relevant transactions. Tax professionals in Dubai can assist you in determining the VAT treatment of services acquired in UAE-Designated Zones.

The VAT treatment for services obtained in Designated Zones differs from the VAT treatment for products acquired in Designated Zones. Goods acquired in the Designated Zones and outside the UAE are classified as being beyond the VAT scope, according to UAE VAT legislation. The supply of services to the Designated Zone, on the other hand, does not receive the same VAT treatment.

This article will go over the VAT treatment of services obtained by the Designated Zone in three separate scenarios: services received from the Designated Zone, services received from the Mainland, and services received from outside the UAE State. To make better tax judgments, it is essential that you get help from VAT professionals in Dubai.

The UAE’s VAT Designated Zones

Designated Zones must meet strict control conditions, according to UAE VAT regulations. The movement of products and people to and from the Designated Zone will be regulated and controlled by stringent security procedures. To control the movement of products into and out of a Designated Zone, Customs procedures must be in place. Tax advisors in Dubai can explain the concept of a Designated Zone in further detail.

UAE Mainland Services

According to UAE tax legislation, services provided from the UAE mainland to a Designated Zone are taxed. The mainland is treated as part of the United Arab Emirates (UAE), and service providers must charge 5% VAT. ABCD Enterprises in the Jebel Ali free zone, for example, has gotten certain IT services from XYZ Technologies on the Dubai mainland. Because the service was transferred from a Mainland firm to a Designated Zone, the delivery of IT Services from XYZ Technologies will be subject to a 5% VAT. Tax agents in the UAE can provide guidance on the VAT treatment of services for firms operating in Designated Zones.

Outside the UAE State Services

As part of their business requirements, a Designated Zone frequently receives services from outside the UAE. Such services received from outside the UAE, however, are subject to a reverse charge tax. Recipients of such services must account for VAT using the reverse charge mechanism and pay the applicable VAT when filing VAT returns in the UAE.

ABCD Enterprises in the Jebel Ali Free Zone, for example, has benefited from IT services provided by PQRS Private Ltd in India. In this case, services are delivered from India to the Jebel Ali Free Zone, a designated zone in the United Arab Emirates. PQRS Private Ltd’s services to ABCD Enterprises will be taxable at the regular VAT rate of 5% in this case. ABCD Enterprises is also required to account for and pay VAT on the services it receives on a reverse charge basis.

Consult the Best Tax Agents in Dubai, United Arab Emirates

Companies operating within the UAE Designated Zones must determine if the services they receive are subject to VAT. Businesses must keep in mind that every service they get, whether from another Designated Zone or from the Mainland, is taxable. Furthermore, under the reverse charge method, services obtained outside the UAE will be subject to VAT.  Intellect Chartered Accountants (ICA), an FTA-approved tax agent in Dubai, can assist businesses in determining their VAT responsibilities.

ICA is a professional VAT expert in Dubai, offering customized tax services to a wide range of businesses. Our FTA-accredited tax advisors are highly qualified and knowledgeable about UAE tax laws. VAT registration, VAT return filing in the UAE, VAT reconsideration, and other tax services are all available through ICA.

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