A designated zone is an area where the customs will control the entry and exit of individuals and movement of goods. The designated zones are handled outside the state of the UAE, meaning that VAT is not imposed. Because it is considered as outside the country, not all suppliers can benefit from this provision, some suppliers do incur 5% VAT. The reason for TAX free supply of goods is only depending on the place of supply. Some of the supply made from or to designated zone will be taxable.
criteria that need to be met in order for a Designated Zone to be treated as outside the UAE for VAT purposes.
- It is a limited, restricted geographical area.
- Area has to be monitored by customs and also under the security measures for to the entry and exit of individuals and movement of goods from and to the region.
- It has internal procedures relating to the way goods are kept, stored and processed within the area.
- The Designated zone operator must follow the procedures laid down by the FTA.
It is only if the area within the designated zones meets all the requirements of Article 51 of the Executive Regulations that it should be treated for VAT purposes as outside the UAE territory.