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:

5%
0%
Exempt
Out of the scope of VAT

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:

5%
0%
Exempt
Out of the Scope of VAT

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:

5%
0%
Exempt
Out of the scope of VAT

Case 4

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

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:

5%
0%
Exempt
Out of the scope of VAT

Case 6

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

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:

5%
0%
Exempt
Out of the scope of VAT

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:

5%
0%
Exempt
Out of the scope of VAT

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 / Goods & Services - Out of Scope Reverse Charge (Standard Rate, Zero Rate) Services - Exempt, Reverse Charge (Standard Rate, Zero Rate)
GCC VAT Registered	GCC	GCC VAT/Exempt/Out of Scope
GCC Non VAT Registered	UAE	Goods / Goods & Services - Out of Scope Services - Exempt, Reverse Charge (Standard Rate, Zero Rate)
GCC Non VAT Registered	GCC	Out of Scope
Non GCC	-	Goods / Goods & Services - Out of Scope Services - Exempt, Reverse Charge (Standard Rate, 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:

5%
0%
Exempt
Out of the scope of VAT

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 / Goods & Services - Out of Scope Reverse Charge (Standard Rate, Zero Rate) Services - Exempt, Reverse Charge (Standard Rate, 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.

Let’s say you buy goods or services from a vendor who is registered for VAT in any one of the GCC member countries other than the UAE. The supply takes place within the UAE.

In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT. Whereas, the reverse charge will be applicable for the following taxes:

For services, the supply can have any one of the following taxes:

Exempt
Reverse Charge along with 5% or 0%

Case 4

Vendor Tax Treatment	Place of Supply	Tax Rates
GCC VAT Registered	GCC	GCC VAT/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 vendor who is in any one of the GCC member countries and is 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. The transaction could also be out of the scope of VAT.

Case 5

Vendor Tax Treatment	Place of Supply	Tax Rates
GCC Non VAT Registered	UAE	Goods / Goods & Services - Out of Scope Services - Exempt, Reverse Charge (Standard Rate, 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, goods associated with services / services associated with goods are out of the scope of VAT.

For services, the supply can have any one of the following taxes:

Exempt
Reverse Charge along with 5% or 0%

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 / Goods & Services - Out of Scope Services - Exempt, Reverse Charge (Standard Rate, 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, goods associated with services / services associated with goods are out of the scope of VAT.

For services, the supply can have any one of the following taxes:

Exempt
Reverse Charge along with 5% or 0%

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:

5%
0%
Exempt
Out of the scope of VAT

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.

Next:
VAT Filing >

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