Is VAT charged on electricity and water bills?

Article 51 – Designated zones30 1. Any Designated Zone specified by a decision of the Cabinet shall be treated as being outside the State and outside the Implementing States, subject to the following conditions: a. The Designated Zone is a specific fenced geographic area and has security measures and Customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area. b. The Designated Zone shall have internal procedures regarding the method of keeping, storing and processing of Goods therein. c. The operator of the Designated Zone complies with the procedures set by the Authority. 30 Article amended as per Cabinet Decision No.88 of 2021. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 39 2. Where the Designated Zone changes the manner of operating or breaches any of the conditions based on which the area was specified as a Designated Zone under a decision issued by the Cabinet, the Designated Zone will be treated as if inside the State. 3. The transfer of Goods between Designated Zones shall not be subject to Tax if the following two conditions are met: a. Where the Goods, or part thereof, are not released, and are not in any way used or altered during the transfer between the Designated Zones. b. Where the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law. 4. Where Goods are moved between Designated Zones, the Authority may require the owner of the Goods to provide a financial guarantee for the payment of Tax, which that Person may become liable for should the conditions for movement of Goods not be met. 5. Where a supply of Goods is made within a Designated Zone to a Person to be consumed by him or another person, then the place of supply of these Goods shall be in the State except in any of the following cases: a. The purpose was to incorporate the Goods into, attach the Goods to, or that the Goods become part of or are used in the production of another Good in the same Designated Zone and such Good is not consumed. b. The Goods were delivered to a place outside the State, and the Supplier retains supporting commercial or official evidence proving that, and customs evidence proving that the Goods were removed from the Designated Zone. c. The Goods were moved from the Designated Zone to a place inside the State, and the Supplier retains official evidence establishing that VAT had been applied on that import. 6. The place of supply of any Services is considered to be inside the State if the place of supply is in the Designated Zone. 7. As an exception to Clause 6 of this Article, the place of supply of any services shall be outside the State, where shipping or delivery services are supplied directly in connection with Goods that have a place of supply outside the State according to paragraphs (b) and (c) of Clause 5 of this Article, and all of the following conditions are met: a. Shipping or delivery services are supplied by the same supplier of the Goods; b. The supplier of the Goods is a Non-Resident, and not registered for Tax; c. These Goods are sold via an Electronic Sales Platform; an Electronic Sales Platform refers to any type of online sales platform, including websites and Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 40 electronic applications, which brings together third-party sellers and buyers, and through which Goods may be sold and purchased with or without shipping or delivery services; d. The person owning the Electronic Sales Platform is not the supplier of the Goods. 8. The Place of supply of water or any form of energy shall be considered to be inside the State if the place of supply is in a Designated Zone. 9. Goods located in a Designated Zone which the owner has not paid Tax on will be treated as Imported into the State if: a. The Goods are consumed by the owner unless they are incorporated into, attached to or otherwise form part of or are used in the production of another Good located in a Designated Zone which itself is not consumed. b. There is shortage in Goods. 10. Any Person established, registered or which has a Place of Residence in a Designated Zone shall be deemed to have a Place of Residence in the State for the purposes of the Decree-Law. Title Ten – Calculation of Due Tax

Article 2 – Supply of Goods 2 1. The process of a transfer of ownership of Goods or of the right to use them from one Person to another Person shall include for instance the following: 2 Article amended as per Cabinet Decision No. 100 of 2024. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 2 a. A transfer of ownership of Goods under a written or verbal agreement for any sale; b. A transfer of ownership for a Consideration in a compulsory manner pursuant to the applicable legislations. 2. For the purposes of Clause 1 of this Article, a transfer of the right to use any assets shall not be treated as a supply of Goods unless the other Person is able to dispose of them as owner. 3. Entry into a contract between two or more parties causing the transfer of Goods at a later time shall be considered a supply of Goods where the agreement mentions a transfer or intention to transfer the ownership of Goods or a future transfer of ownership of Goods. 4. The following shall be considered a supply of Goods: a. A supply of water. b. A supply of real estate including the lease, sale and any other forms of disposal causing the transfer of ownership thereof from one Person to another. c. A supply of all forms of energy, which includes electricity and gas, including biogas, coal gas, liquefied petroleum gas, natural gas, oil gas, producer gas, refinery gas, reformed natural gas, and tempered liquefied petroleum gas, and any mixture of gases, whether used for lighting, or heating, or cooling, or air conditioning or any other purpose.

4. Specific cases 4.1. Supplies of water and energy Supplies of water or any form of energy are supplies of goods. Therefore, similar to supplies of other goods within Designated Zones, such supplies may be treated as being outside the scope of the UAE if they meet conditions discussed in part 3.3 of this Guide. However, where water or energy is supplied for consumption (e.g. water and electricity provided by a water and electricity authority), then the place of supply of such water and energy reverts to being treated as being within the UAE14 and the supply is subject to the normal VAT treatment. This override applies even if the water or energy is used in the process of production of other goods in the Designated Zone. This means that suppliers of water and energy shall charge VAT without the need to distinguish between the potential uses for water and energy. For the purpose of the rule, the term “energy” includes electricity and gas, including biogas, coal gas, liquefied petroleum gas, natural gas, oil gas, producer gas, refinery gas, reformed natural gas, and tempered liquefied petroleum gas, and any mixture of gases, whether used for lighting, or heating, or cooling, or air conditioning or any other purpose.15 It should be noted that the rule only applies to water and energy sold for the purpose of consumption. Supplies of oil, gas, and other similar goods traded by businesses within Designated Zones may still be outside the scope of UAE VAT if the necessary conditions are met. 4.2. Supplies of real estate Supplies of real estate, which include the sale and lease of real estate, are treated as supplies of goods. The place of supply of such supplies is where the real estate is located. It should be noted that real estate is not treated as consumed when sold or leased within a Designated Zone and therefore such supplies of real estate are not brought into the scope of UAE VAT by Article 51(5) of the Executive Regulations. As such, supplies of real estate made within Designated Zones are outside the scope of VAT. In light of the above, raw materials purchased within a Designated Zone for the purpose of constructing real estate in the Designated Zone are also outside the scope of VAT. This is because the raw materials will be used in the production of another good (the real estate) located in the same Designated Zone which itself is not consumed. 14 Article 51(7), Executive Regulations. 15 Article 2(4)(c), Executive Regulations. Page 16 VAT Guide | Designated Zones | VATGDZ1