In this article, we are going to learn a very important provision related to designated. So as far as the UAE is concerned in business there are a lot of free zones, especially in Dubai, there are many free zones. So some of the free zones are controlled by customs and entry and exit of humans and the movements of goods are controlled by fencing so those are Custom controlled free zones.
Some other free zones in
many most of the free zones in the UAE are not customs-controlled free zones.
So as per the UAE law, UAE VAT Law adverse
the free zones are divided into two
• Designator zones
• Other than designated zones
So some special provisions are applicable only for designated zones. Those are
mentioned in Article 51 of the executed regulation of the VAT Law before understanding the provisions related to designated
zones let us understand how the transactions are there on the mainland. See in
my example
The central position is
inside the state that is UAE, the left and the right are considered as outside
the UAE. So in this example, I am going to discuss when materials are imported
from outside the world that is outside the UAE
- UAE it has to be recorded under the reverse charge that we already
discussed.
When we are selling
materials from UAE that are in the mainline to our state UAE that is - other
than implementing state. It will be an X export that will be 0 rated at the same
time within the UAE. If the means from within the UAE if any purchases then the supplier has to charge five
percent from the customer
Now let us understand
how the tax applicability in the case of designated zones. Let us consider the
purchases in the case of goods the purchases. See in my example
The center point is the
designated zone and on one side you can see the world outside UAE the other side you can see UAE. So you a designated
zone outside UAE let us see how the purchase impact will be there for the
VAT for the designated zones.
Here the goods are
purchased either from the mainland or from the designated zone or from outside
the UAE. Suppose the first purchase is happening from outside the state then
such purchase will be out of scope. There should not be tax applicability
for such purchases
Second, if the purchase
is happening from the mainland that is inside the state from the inside state
the designated zone is purchasing some products in that case five percent tax
will be applicable. So the buyer that is a designated zone has to account and
can take the input credit.
Next one if any sale is
happening within the designator zone that means our company is going to buy
from a designator zone the discharge supplier, in that case, it will not be
taxable because within the designator zone if the materials are sold it will
not be taxable unless it is used for consumption. The same way if the purchase
is happening from another designated zone also there will not be the tax.
Now let us see while
selling the products how the tax will be applicable in the case of designated
zones. See the translations the center point is designated zone
So on one side is inside
UAE and the other side is outside the UAE so here let us understand how the tax
applicable.
See the designated zone
I company is registered in the designated zone that is selling the products to
another company which is located outside the UAE. in such case it will be out
of scope, the tax liability will not be there for the designators own company
even though the sailors are making to an individual outside the UAE still the tax liability will not be it will be an
out of scope sales.
At the same time if the
registered company in the designated zone is selling to a mainland company or
to an individual overall, the tax impact will be 5 percentages. At the same time
the designated zone company registered one selling to another company
registered in the designated zone, there won't be the tax.
But if such a sale is
made to any individual for consumption definitely, five percentage of taxes have
to tax has to be collected by the designator's own company and a way to the
authority. The same time if such a sale is made to another company within the
designated zone but if such sale is made for consumption then also five-person
a tax has to be collected and paid to the authority
The same will be
applicable in the case of another designator zone then a five percent tax will
be there if it is used for consumption otherwise no tax or such a sales.
So far we were
discussing the transactions of goods from the designated zone to the mainland
or designator zone to outside UAE or
between designated zones or within the designated zones as well.
But in the case of
services or services from the designated zone company will be treated as at par
with the state that means for any service done within the designated soul will
be treated as similar the transaction has taken that means 5% tax liability will be there for transactions for the services done
in the designator.
So in short designated
zones have got special provisions and some of the transactions will be taxable
and some of the transactions will not be taxable in the case of services in the
designated zone.
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