UAE VAT Compliance in the Jebel Ali Free Zone

UAE VAT Compliance in the Jebel Ali Free Zone

What is VAT and How It Applies in the UAE

The United Arab Emirates introduced Value Added Tax (VAT) at a standard rate of 5% effective January 1, 2018, to diversify government revenue and bring the tax system in line with global practices. VAT is a consumption tax levied on most goods and services sold or imported into the UAE.

JAFZA: A Designated Free Zone for VAT Purposes

Jebel Ali Free Zone is one of the “Designated Zones” under UAE VAT law. Designated Zones are specific areas identified by a Cabinet Decision where certain VAT treatments for goods transactions differ from standard mainland rules

What “Designated Zone” Means

• Goods transactions within JAFZA may be treated as outside the UAE for VAT purposes, provided strict conditions are met regarding customs control and movement.

• This special treatment helps avoid VAT on goods supplied inside the zone or between designated zones, which can be a significant advantage for trading and logistics companies

• This special treatment helps avoid VAT on goods supplied inside the zone or between designated zones, which can be a significant advantage for trading and logistics companies

• Important Note: Although goods might enjoy special VAT treatment, services are generally taxable at 5% even within the zone unless they qualify for export or other zero-rate conditions

Mandatory VAT Registration Requirements

Even though JAFZA is a designated free zone, local VAT registration rules still apply:

Thresholds for VAT Registration

• Mandatory Registration: If a company’s taxable supplies and imports exceed AED 375,000 in the previous 12-month period, it must register for VAT with the Federal Tax Authority (FTA).

• Voluntary Registration: Businesses with taxable supplies between AED 187,500 and AED 375,000 can choose to register voluntarily, which allows them to reclaim input VAT on eligible expenses.

• Once registered, companies receive a Tax Registration Number (TRN) and must comply with ongoing filing and reporting obligations.

VAT Compliance Obligations for JAFZA Companies

Regular VAT Return Filing

• Registered businesses must file VAT returns — usually quarterly, unless the FTA assigns a different tax period — using the official e-Services portal. Returns must be submitted by the due date, and any VAT due must be paid within 28 days after the end of the tax period.

Accurate VAT Invoicing

• All taxable supplies must be supported by VAT-compliant invoices containing details such as the supplier’s TRN, invoice date, description of the goods/services, and the VAT amount.

Record-Keeping Requirements

• Businesses must keep comprehensive VAT records for a minimum of five years. This includes sales and purchase invoices, import/export documents, and customs evidence for goods under the designated zone rules.

Reverse Charge Mechanism on Imported Services

• If a JAFZA company imports services (e.g., consultancy, marketing) from a foreign supplier, it must account for VAT under the Reverse Charge Mechanism (RCM) — charging itself VAT on the service value and claiming input VAT where allowable.

Special VAT Treatments for Goods in JAFZA

Because JAFZA is a Designated Zone:

• Supply of goods within the zone or to another Designated Zone: May be treated as outside the scope of VAT (no VAT charged) if customs control conditions are met.

• Goods sold to mainland UAE: Treated as imports into the UAE, and the importer (often the buyer) is responsible for paying 5% VAT.

• Exports outside the UAE: Can be zero-rated, allowing companies to charge 0% VAT but still reclaim input VAT paid on related expenses.

Penalties for Non-Compliance

• Failing to comply with VAT laws — such as missing registration deadlines, incorrect VAT invoicing, or late return filing — can lead to penalties and fines imposed by the FTA. Prompt and accurate compliance not only avoids sanctions but also builds trust with regulators.

Practical Tips for JAFZA Businesses

• Monitor Turnover Closely: Track your taxable turnover monthly to ensure timely VAT registration when thresholds are crossed.

• Use Professional Support: VAT accounting specialists can help with registration, filing, and audit readiness.

• Maintain Customs Evidence: Ensure customs declarations and warehouse movement logs are complete to support designated zone VAT treatment.