There has been a lot of discussion about free zones and designated zones since the implementation of VAT. The Ministry of Finance has clarified some details about these zones and announced the establishment of twenty designated zones across the country.
The distinction between free zones and designated zones is frequently misunderstood by business owners. You can get an overview of free zones and how they will affect your business under the VAT regime in this section.
1. Free zone
Firms in a free zone can be entirely owned by expatriates without the need for local partners. Businesses in free zones that are not designated zones will be taxed at the standard VAT rates.
2. Designated zone
These zones are VAT-free, and despite being located within the Emirates, they are treated as if they are located outside the UAE for VAT purposes.
3. Mainland area
A mainland area often contains many firms, and holding a business in a mainland area necessitates the local sponsorship of a UAE national as well as 51 percent UAE national ownership.
– Free zones and designated zones must register for VAT.
– Firms in free zones/designated zones are subject to the standard registration threshold and process.