The UAE’s Federal Tax Authority (FTA) has added three new free zones to the list of designated zones that will be out of the five percent VAT scope imposed earlier this year.

The new addition sees the total designated zones increasing to 23 across the UAE.

Federal Decree Law No. (8) of 2017 on VAT specifies that any area meeting certain conditions and mentioned in the Cabinet decision is termed as designated zone for VAT purposes and should be treated as being outside the state for VAT purposes.

According to the FTA, the newly-added free zones are Al Ain International Airport Free Zone, Al Bateen Executive Airport Free Zone in Abu Dhabi, and International Humanitarian City – Jebel Ali in Dubai. The treatment of these areas as designated zones was effective from June 18, 2018.

Thomas Vanhee, partner at Aurifer Middle East Tax, said businesses that have transactions in the new designated zones will be relieved that no VAT applies on the supplies of goods inside the designated zones with some exceptions.

“Some businesses in these designated zones may potentially now deregister for VAT purposes. It will be important for them to assess again their transactions in the zone and determine which ones are actually subject to VAT and which ones are not. Although this constitutes an important relief, the transactions with designated zones can be complex,” said Vanhee.

Currently, eight designated zones are located in Dubai, five in Abu Dhabi, three in Ras Al Khaimah, two each in Fujairah, Sharjah and Umm Al Quwain, and one in Ajman.