VAT on Designated Zones in UAE – Complete 2025 Guide

 


VAT on Designated Zones in UAE – Complete 2025 Guide

The Federal Tax Authority (FTA) implemented Federal Decree-Law No. 8 of 2017 to introduce Value Added Tax (VAT) in the UAE. Effective from January 1, 2018, VAT has become an integral part of business operations across the country.

What is VAT in the UAE?

VAT is an indirect tax imposed on the supply of goods and services at every point in the supply chain. The end consumer ultimately bears the tax cost, while registered businesses collect and remit VAT on behalf of the government.

Purpose of VAT Implementation

The UAE introduced VAT to diversify revenue streams and support its high-quality public services such as healthcare, education, and transportation. This move also contributes to long-term economic stability.

What is the VAT Rate in the UAE?

The standard VAT rate is 5%. However, some goods and services are categorized as zero-rated or exempt under UAE VAT law, making them either tax-free or non-taxable.

How VAT Works: Example

Imagine a mobile phone sold by a manufacturer to a distributor, who then sells it to a retailer, who finally sells it to the end consumer. VAT is charged at each stage at 5%, but registered businesses can claim VAT refunds on purchases. This creates a tax credit chain that ensures proper collection at the consumer level.

VAT Registration in UAE

Mandatory Registration: If your taxable supplies and imports exceed AED 375,000 annually.

Voluntary Registration: If they exceed AED 187,500.

You can register online via the FTA’s official website.

Types of VAT Supplies in the UAE

  • Standard-Rated Supplies: 5% VAT applies.
  • Zero-Rated Supplies: 0% VAT, but businesses can reclaim input tax. Examples: education, healthcare, exports, precious metals, and international transport.
  • Exempt Supplies: No VAT, and input tax cannot be claimed. Includes residential rent, undeveloped land, life insurance, and public transport.
  • Deemed Supplies: Not traditional supplies but VAT still applies. Includes personal use of business assets or transferring goods across GCC states.
  • Out-of-Scope Supplies: Supplies not subject to VAT as defined by the FTA.
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© 2025 Unicorn Global Solutions | UAE VAT Advisory Services

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