United Arab Emirates: Ministry Of Finance Issues Cabinet Decisions For Implementation Of VAT

Last Updated: 12 January 2018
Article by STA Law Firm
Most Read Contributor in United Arab Emirates, August 2018

The Vice President and Prime Minister of the UAE His Highness Sheikh Mohammed bin Rashid Al Maktoum on 9 January 2018 issued two Cabinet Decisions. The Cabinet Decision Number 59 of 2017 concerning the Designated Zone (the Cabinet Decision for Designated Zone) and Cabinet Decision Number 56 of 2017 regarding Medications and Medical Equipments subject to Tax at Zero-Rate (the Cabinet Decision for healthcare) for applying Federal Law Number 8 of 2017 on Value Added Tax (the VAT Law). The former decision provides a list of designated zones exempted from tax, whereas, the latter shed light on zero-rate tax in the healthcare sector.

Cabinet Decision 59 of 2017 concerning Designated Zones

The Article 1 of the Cabinet Decision for Designated Zone stipulates that the designated zones annexed with the Cabinet Decision meet the requirement of the Cabinet Decision Number 52 of 2017 on the Executive Regulation of the VAT Law (the Executive Regulation) and shall be considered as Designated Zones for the implementation of VAT Law. However, the term Designated Zones is defined under the Executive Regulation as below:

' Any Designated Zone specified by a decision of the Cabinet shall be treated as being outside the State and outside the Implementing States, subject to the following conditions:

i.The Designated Zone is a specific fenced geographic area and has security measures, and Customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area.

ii.The Designated Zone shall have internal procedures regarding the method of keeping, storing and processing of Goods therein.

iii.The operator of the Designated Zone complies with the procedures set by the Authority.'

The Executive Regulation further states that if the Designated Zone changes the manner of operations and does not fall under the conditions mentioned above, it will then be taken into consideration as being in the state.

The Cabinet Decision for Designated Zone provides a list of 20 free zones in the UAE which will be considered as Designated Zones, which are as follows:

Free Zone in Abu Dhabi


Free Trade Zone of Khalifa Port


Abu Dhabi Airport Free Zone


Khalifa Industrial Zone

Free Zone in Dubai


Jebel Ali Free Zone (North-South)


Dubai Cars and Automotive Zone (DUCAMZ)


Dubai Textile City


Free Zone Area in Al Quoz


Free Zone Area in Al Qusais


Dubai Aviation City


Dubai Airport Free Zone

Free Zone in Sharjah


Hamriyah Free Zone


Sharjah Airport International Free Zone

Free Zone in Ajman


Ajman Free Zone

Free Zone in Umm Al Quwain


Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port


Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road

Free Zone in Ras Al Khaimah


RAK Free Trade Zone


RAK Maritime City Free Zone


RAK Airport Free Zone

Free Zone in Fujairah


Fujairah Free Zone


FOIZ (Fujairah Oil Industry Zone)

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Article 2 of the Cabinet Decision for Designated Zone also authorizes the FTA to make amendments to the list mentioned above by way of adding any new Designated Zone or deleting the existing Designated Zone. Article 3 of the Cabinet Decision for Designated Zone suggests that the Ministry of Finance will further lay down decisions for proper implementation of this Cabinet Decision, which will provide absolute clarity regarding the VAT implementation on Designated Zones.

Importantly, the transfer of goods between the Designated Zones will be exempted from tax as mentioned under Article 51 of the VAT Law, subject to the clause that goods are not altered during the transit or the transfer was in accordance with the GCC Common Customs Law. The FTA in this regards has the authority to seek guarantee which is equivalent to the tax liability for the goods in transit if the authority is of the opinion that the goods so transferred does not meet the pre-conditions. The Cabinet Decision abrogates any provision which will violate or conflict with the provisions of this Cabinet Decision for Designated Zone as mentioned under Article 4 of the Decision. The last Article of the Cabinet Decision states the implementation of this Decision which will come into effect from 1 January 2018.

Cabinet Decision Number 56 of 2017 concerning Medications and Medical Equipments subject to Tax at Zero-Rate

The Cabinet Decision on Healthcare explains the medications and the medical equipment which are exempted from the tax. Article 1 of the Cabinet Decision for Healthcare defines Medications or Medical Equipments as follows and the words mentioned in the definition will have the meanings assigned unless the context otherwise states:


Every product containing a substance(s) which achieves the intended objective in or on the human body via biological effect, which is produced, sold or offered for use in cases relating to diagnosing, treating, healing, relieving or preventing diseases, or renewing, correcting or rehabilitating the function of body organs.

Medical Equipment

A medical product containing a substance, device, instrument, motor, implant, detector or system, including its accessories and operating software, which achieves the intended objective in or on the human body without medicinal, immunological or metabolic effect, which is produced, sold or offered for use in cases relating to diagnosing, treating, relieving, controlling or preventing diseases, injury or disability.

According to Article 2 of the Cabinet Decision for Healthcare, the supply of medications or medical equipment which are registered with the Ministry of Health (MOH) or is imported within the country with the prior approval of MOH will be subject to zero-rate tax. Wherein the VAT Law under Article 44 and 45 mentions that the supply and import of Goods and Services mentioned in the chapter made by a Taxable Person shall be a taxable Supply to the zero-rate. Article 45 of the VAT Law specifies a list of supply which will be subject to zero-rate, wherein the supply of preventive and basic healthcare services and other related goods will also be subject to zero-rate.

Article 3 of the Cabinet Decision for Healthcare authorizes Ministry of Finance in order to issue relevant decisions for proper implementation of this cabinet decision. It is also important to note that any other provision of law which violates or conflict the provisions of this Cabinet Decision will stand abrogated.

Lastly, both the Cabinet Decisions though passed after one week of implementation of the VAT Law, will have a retrospective effect starting from 1 January 2018. Ergo, it is advised to make required changes to the business transactions which have taken place post the implementation of the VAT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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