VAT on goods movement across free zones or mainland Dubai. The easiest way to understand the applicability 
UAE’s Value Added Tax (VAT) law has given liberalised treatment to Gated Free Zones by giving them an option to trade without VAT. Further, when an entity buys goods from such Free Zones, the compliance is on the Buyer under Reverse Charge Mechanism or commonly known as RCM. Here is a guide to understanding UAE VAT applicability for every trade.
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What is a Designated Free Zone?
It is a free zone in UAE specified by the tax authority as a Designated Free Zone for VAT purposes. UAE has about 50 Free Zones, but not all Free zones are Designated Free Zones.
All Free Zones other than those Designated by the tax authority are treated at par with the mainland for Value Added Tax purposes in UAE.
A list of designated Free Zones has been given below.
Designated Free Zones in Dubai
  • Jebel Ali Free Zone
  • Dubai Cars and Automotive Zone
  • Dubai Textile City
  • Free Zone Area in Al Quoz
  • Dubai Aviation City
  • Dubai Airport Free Zone
  • International Humanitarian City, Jebel Ali
Designated Free Zones in Abu Dhabi
  • Free Trade Zone of Khalifa Port
  • Abu Dhabi Airport Free Zone
  • Khalifa Industrial Zone
  • Al Ain International Airport Free Zone
  • Al Butain International Airport Free Zone
Designated Free Zones in Ras Al Khaimah
  • RAK Free Trade Zone
  • RAK Maritime City Free Zone
  • Al Hamra Industrial Zone, Free Zone
  • Al Ghail Industrial Zone, Free Zone
  • Al Hulaila Industrial Zone, Free Zone
Designated Free Zones in Sharjah
  • Hamriyah Free Zone
  • Sharjah Airport International Free Zone
Designated Zones in Umm Al Quwain
  • Umm Al Quwain Free Trade Zone, Ahmed Bin Rashid Port
  • Umm Al Quwain Free Trade Zone, Sheikh Mohammed Bin Zayed Road
Designated Free Zones in Fujairah
  • Fujairah Free Zone
  • b.Fujairah Oil Industry Zone
Designated Free Zones in Ajman
  • Ajman Free Zone
Reverse Charge Method
In General, the supplier charges VAT on the invoice at the time of sale. However, there is a special instance where the buyer declares VAT on his purchases. It is known as VAT charged under Reverse Charge Method or RCM.
The RCM applies to the purchase of goods by mainland entities and Non-Designated Free Zones from entities outside the country or located in Designated Free Zones.
The buyer declares the purchases and corresponding tax as VAT output and VAT input while filing the tax return. It has no financial impact.
Out-of-scope transactions
A transaction outside the scope of UAE VAT Law is known as an “Out of scope” Transaction. Transactions within the scope can be (1) taxable-Zero rated or Standard rated- or (2) exempt.
Now that we have understood the key terms, let us discuss the type of entities. For easy understanding, let us classify entities into the below three categories based on location.
Type A: Entities located in Designated Free Zones.
Type B: Entities located outside Designated Free Zone but inside UAE
Type C: Entities located outside UAE
Applicability of VAT
Without complicating, let us understand the applicability from the below table.
Goods movement between
Designated Free Zone
Mainland or Non-Designated Free Zone
Outside UAE
Designated Free Zone
Out-of scope Note 1 &2
Taxable-RCM Note 3
Out of scope Note 4
Mainland or Non-Designated Free Zone
Taxable Note 5
Taxable Note 5
Zero-rated Note 6
Outside UAE
Out of scope Note 7
Taxable-RCM Note 3
Out of scope
  1. When goods move within the same Free Zone, the goods shall not be for consumption. 2.Goods movement between these free zones is subject to correct controls, processes and records being in place, and a financial guarantee.
  2. Treated as an import. Importer pays VAT either via its VAT return-RCM (if registered) or in cash at the time of importance (if unregistered)
  3. Subject to correct controls, processes and records being in place proving goods leaving the country.
  4. Same rule as supply to mainland UAE.
  5. It is taxed at 0%, with eligibility to claim the tax paid on purchases and expenses.
  6. Subject to correct controls, processes and records being in place.

  7. An important point to note is that the above is applicable for the supply of goods and NOT for the supply of services. Supply of Services from UAE to outside UAE will be Zero Rated. All supply of service in UAE, including Designated Free Zones, will be taxable at the standard rate.
Practical insights
Moving goods from a Designated Free Zone or outside the country does not require a tax invoice. A commercial invoice would suffice for this purpose.
When clearing goods from a Designated Free Zone, the buyer has to clear the shipment using his customs code, upon which the RCM credit will automatically reflect in the portal. However, to do this, the customs code and the VAT registration of the user shall be linked. VAT must be paid in cash before clearing the goods if it is not linked. 
For moving goods between Designated Free Zones, a financial guarantee needs to be given before leaving the departing Free Zone and can be called back after the goods enter the destination Free Zone.