Designated Zones in UAE
UAE offers three types of legal structures to Companies which are Mainland Company, Free Zone Company and Offshore Company. Free Zone and Offshore Companies have their own Limitations and Benefits.
As per the Department of Economic Development of UAE, Free Zone and Offshore Companies are considered as excluded from the territorial scope of the UAE Ex. JAFZA, SAIF, DMCC and many more. But as per Federal Decree Law of VAT, some free zones have been listed by FTA, only those free zones would be considered within the UAE and qualify for special VAT treatment. These listed free zones are called designated zones. Where a Free Zone is not a Designated Zone, it is treated the same as any other part of the UAE.
To Simplify, all Free Zones have not Designated Zones but all Designated Zones are Free Zones.
Why the designated zone is created in the UAE?
The only answer to this question is, that it is a measure to develop and enhance international trade on a VAT neutral basis. Therefore, one should not think that these are designed in any way to enable tax avoidance at any level.
Designated Zone businesses are considered as on shore (i.e. within UAE) for VAT purposes. This means that they have the same obligations as non-designated Zone businesses and have to register, report and account for VAT. All the provisions of Federal Decree Law will be applicable on Designated Zone Companies same as Mainland Companies.
There may be various scenarios of transactions in the designated zone for ex: A business purchases stock for the purpose of resale within the Designated Zone, A manufacturer in the Zone buys a computer to designs for goods to be manufactured by him etc. VAT implication on each transaction depends on the facts of each case.
VAT Consultants in Dubai will guide you on VAT implications of different business scenarios and transactions depending upon your location and your Customer/supplier location. Tax consulting firms in UAE are giving ease to VAT implementation and compliance process by providing their valuable services.
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What is more suitable for your business? Free zone or Mainland