A designated zone is a free zone that a Cabinet Decision has named for special VAT treatment. In the FTA's guide, only listed free zones qualify, and a free zone that is not a designated zone is treated like any other part of the UAE. "Free zone" is a licensing word; "designated zone" is a VAT word. A free zone may or may not be a designated zone.
What changes inside a designated zone?
The guide says designated zones are treated as outside the UAE for VAT for certain supplies of goods, so many supplies of goods there fall outside UAE VAT, subject to strict criteria and detailed record keeping. Services are different: they are treated as in the rest of the UAE. Being listed does not make a zone offshore automatically; the zone must also meet the control criteria on security and customs. The guide is Issue 1, July 2018. A later change to Article 51 of the VAT Executive Regulation, in force from 30 October 2021, treats goods supplied in a designated zone as outside the scope of VAT under conditions, including where they are consumed outside the zone and the seller holds evidence they were shipped abroad or that import VAT was paid; the FTA's announcement also says the list then had 27 designated zones. Check the FTA site for the current list and any newer guidance.
What does it mean for goods moving in and out?
- Goods moved from mainland UAE into a designated zone are not treated as an export; they are local movements or supplies.
- Goods brought in from outside the UAE are treated as outside the UAE, so no UAE VAT is charged on that movement.
- When goods go from the zone into the mainland, it is an import and the importer pays import VAT. Full recovery of that import VAT is a special rule: it applies only when a VAT-registered person already paid VAT on buying the same goods inside the zone, with no transaction in between. Customs paperwork for that step is a bill of entry.
The guide says the list is published under the Legislation tab of tax.gov.ae. Seller-level detail, including registration, is in VAT for designated and free zone sellers. The FTA registration page gives one mandatory threshold, AED 375,000, and no separate figure for free or designated zones. See also TRN.
How do you check whether your zone is designated?
- Ask your free zone authority in writing whether it is a designated zone for VAT and under which Cabinet Decision.
- Open the Cabinet Decision list under the Legislation tab on tax.gov.ae.
- Confirm the zone still meets the security and customs criteria; the guide says a listed zone is treated as outside the UAE only to the extent the requirements are met.
- Keep records of where goods are stored and who bought them. The guide ties the VAT treatment to detailed record keeping.
If you hold a mainland license, none of this applies to your own premises: mainland sales are within the UAE for VAT.
Check this first. This is general information, not tax advice. Confirm whether your zone is designated, and how your sales are treated, with the Federal Tax Authority.