A company established in a UAE Designated Zone that meets all Executive Regulation conditions provides consulting services to a customer also located within that same Designated Zone. Under UAE VAT Law's Designated Zone rules (Article 51 of Federal Decree-Law No. 8 of 2017 and its Executive Regulation), how is this supply of services treated, as compared with an ordinary sale of goods between two businesses located in the same Designated Zone?
- Both the services and the goods are treated as taking place outside the UAE for VAT purposes, because the special Designated Zone place-of-supply rules under Article 51 apply equally to goods and services
- The special Designated Zone rules under Article 51 apply only to supplies of goods; a supply of services between two businesses in the same Designated Zone is instead subject to the normal place-of-supply rules, so it is treated as a taxable supply within the UAE like any other domestic supply of services
- The consulting services are zero-rated exports, because any service supplied within a Designated Zone is automatically treated as an export outside the UAE
- Neither the goods sale nor the consulting services can be supplied within a Designated Zone at all, because Designated Zones are restricted to the storage of goods only
Why B? And why not the others?
Correct answer: B. The special Designated Zone rules under Article 51 apply only to supplies of goods; a supply of services between two businesses in the same Designated Zone is instead subject to the normal place-of-supply rules, so it is treated as a taxable supply within the UAE like any other domestic supply of services
Article 51 of Federal Decree-Law No. 8 of 2017 and its Executive Regulation carve Designated Zones out of the 'state' for VAT purposes only in relation to supplies of goods that meet specific conditions, such as goods that stay within the Designated Zone or move between Designated Zones; this special treatment does not extend to supplies of services, which continue to be subject to the ordinary place-of-supply rules regardless of where within the UAE, including inside a Designated Zone, they are made. So the consulting services here are treated as a normal domestic supply of services within the UAE, taxable in the same way as if made anywhere else in the UAE, while only the goods sale benefits from the Designated Zone's special goods-specific treatment. The option applying the special rule equally to goods and services is wrong because Article 51's Designated Zone carve-out is explicitly limited to goods, not services. The option treating the consulting services as an automatic zero-rated export is wrong because being physically located within a Designated Zone does not itself make a service an export; export zero-rating depends on the service meeting the separate zero-rating conditions for exported services, which is not established merely by both parties being sited in the same Designated Zone. The option claiming Designated Zones cannot host any service supply at all is wrong because Designated Zones commonly host service activity; it is only the special VAT place-of-supply treatment, not the physical provision of services, that is restricted to goods.
Source: UAE Federal Decree-Law No. 8 of 2017, Article 51 (Designated Zones) and its Executive Regulation (special treatment limited to goods)