What is a Designated Zone for VAT?

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 51 - Transfer of Goods in Designated Zones 1. Goods may be transferred from one Designated Zone to another Designated Zone without any Tax becoming due. 2. The Executive Regulation of this Decree-Law shall specify the procedures and conditions for the transfer of Goods from and to a Designated Zone as well as the mechanism of keeping, storing and processing such Goods therein.

1. Introduction 1.1. Overview 1.1.1. Short brief VAT has been introduced with effect from 1 January 2018 in the UAE. As a general consumption tax on the supply of goods and services, it applies to those supplies which take place within the territorial area of the UAE. Historically, Free Zones have been excluded from the territorial scope of the UAE. For VAT purposes, this is not automatically the case. Only those Free Zones listed in a Cabinet Decision qualify for special VAT treatment and that special VAT treatment has certain limitations. These nominated Free Zones are known as Designated Zones for VAT purposes. Designated Zones are:     subject to strict control criteria; required to have security procedures in place to control the movement of goods and people to and from the Designated Zone; required to have Customs procedures to control the movement of goods into and out of the Designated Zone; and treated as being outside the territory of the UAE for VAT purposes for certain supplies of goods. The effect for businesses operating in Designated Zones will be that many supplies of goods will be outside the scope of UAE VAT, subject to strict criteria and detailed record keeping. However, supplies of services are subject to the normal UAE VAT rules. Strict qualifying criteria are applied to limit the use of the Designated Zones measure to those businesses for which it is designed, i.e. it is a measure to facilitate international trade on a VAT neutral basis and is not one designed to enable tax avoidance at any level. 1.1.2. Purpose of this document This document contains more detailed guidance about the characteristics of a Free Zone which must be present in order for it to qualify as a Designated Zone for VAT purposes. In addition, this document provides guidance for businesses operating in Designated Zones seeking to understand the VAT implications of their activities within and outside the Designated Zones. Page 3 VAT Guide | Designated Zones | VATGDZ1

VATP027 توضيح عام بشأن ضريبة القيمة المضافة VAT Public Clarification Goods Supplied in a Designated Zone, and السلع التي يتم توريدها في منطقة محددة وخدمات الشحن أو التوصيل المرتبطة بها Connected Shipping or Delivery Services الموضوع Issue Taxable persons are required to impose VAT on ّيتعيّن ّعلى ّالخاضعين ّللضريبة ّفرض ّضريبة ّالقيمة every taxable supply and deemed supply made by ّالمضافةّعلىّكلّتوريدّخاضعّللضريبةّوتوريدّاعتباري that person in the UAE. VAT is also imposed on the ّّكماّيتم.)"يقومونّبهّفيّاإلماراتّالعربيةّالمتحدةّ("الدولة importation of concerned goods. 1 ّكذلك ّفرض ّضريبة ّالقيمة ّالمضافة ّعلى ّاستيراد ّالسلع 1.المعنية The supply of goods within a designated zone is ّّيعتبرّتوريدّالسلعّداخلّمنطقةّمحددةّخارجّنطاق،ًعموما generally regarded as being outside the scope of ّضريبة ّالقيمة ّالمضافة ّفي ّالدولة ّما ّلم ّيتم ّتوريد ّالسلع UAE VAT, unless the goods are supplied to be ّّالّتعتبرّالمنطقة،ّوألغراضّالتوضيحّالعامّهذا.لالستهالك consumed. For the purposes of this Public ّ .المحددةّعلىّأنهاّفيّالدولةّماّلمّيتمّالنصّعلىّخالفّذلك Clarification, a designated zone is not considered to be within the UAE unless stated otherwise. In instances where goods are supplied within a ّفيّالحاالتّالتيّيتمّفيهاّتوريدّالسلعّداخلّمنطقةّمحددة designated zone for consumption (within or ّّيكون،)لغرضّاالستهالكّ(داخلّأوّخارجّالمنطقةّالمحددة outside the designated zone) the place of supply of ّّماّلمّينطبق ّأي،مكانّتوريدّهذهّالسلعّعمومً اّفيّالدولة these goods shall generally be in the UAE, unless a ّّقدّتخضعّهذه،ّوفيّحالّعدمّوجودّاستثناء.استثناءّمحدد specific exclusion applies. In lieu of such an ّّأيّعندّنقلّملكيةّالسلعّوعند،التوريداتّلضريبةّمزدوجة exclusion, such supplies may potentially be subject ّ 2.استيرادها to double taxation, i.e. on the transfer of ownership of the goods as well as on importation thereof. 2 The place of supply of services is generally ّيُعتبر ّمكانّتوريدّالخدماتّعمومً اّبأنهّداخلّالدولة ّإذاّتم regarded as being inside the UAE if supplied in the ّ ّوفي ّحال ّلم ّينطبق3.تقديم ّالخدمات ّفي ّالمنطقة ّالمحددة designated zone.3 In lieu of a special exclusion, the ّّفإن ّمكانّتوريدّخدماتّالشحن ّوالتوصيل،استثناءّخاص 1 / 11