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Cabinet Decisions on VAT Regarding Designated Zones and Healthcare

Sara Corradi

Author: Sara Corradi
Senior Lawyer.

Guiding Principle
On 9 January 2018 Vice President and Prime Minister of UAE issued two Cabinet Decisions – the Cabinet Decision Number 59 of 2017 concerning the Designated Zones (hereinafter “Cabinet Decision on Designated Zones”) and the Cabinet Decision Number 56 of 2017 (hereinafter “Cabinet Decision on Healthcare”) regarding Medications and Medical Equipment – in order to implement the Federal Law Number 56 of 2017 on Value Added Tax (hereinafter “VAT Law”).

A. Cabinet Decision on Designated Zones.
According with the Art. 1 of the Cabinet decision on the Designated Zones the following zones – if meet the conditions stipulated in the Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (hereinafter “Executive Regulation on VAT”) – shall be considered as Designated Zones for the purposes of implementing the VAT Law.

According with the Art. 51 of the Executive Regulation on VAT a Zone to be considered as Designated is supposed to be specified by a decision of the Cabinet; the Designated Zone shall be treated as being outside the State and outside the Implementing States and it shall be subject to the following conditions:

a. 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;
b. the Designated Zone shall have internal procedures regarding the method of keeping, storing and processing of Goods therein;
c. the operator of the Designated Zone complies with the procedures set by the Authority.

The new list as amended by the Cabinet Decision on Designated Zones is the following:

Designated Zones (Abu Dhabi)
1. Free Trade Zone of Khalifa Port
2. Abu Dhabi Airport Free Zone
3. Khalifa Industrial Zone

Designated Zones (Dubai)
1. Jebel Ali Free Zone (North-South)
2. Dubai cars and Automotive Zone (DUCAMZ)
3. Dubai Textile City
4. Free Zone Area in Al Quoz
5. Free Zone Area in Al Qusais
6. Dubai Aviation City
7. Dubai Airport Free Zone

Designated Zones (Sharjah)
1. Hamriyah Free Zone
2. Sharjah Airport International free Zone

Designated Zones (Ajman)
1. Ajman Free Zone

Designated Zones (Umm Al Quwain)
1. Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
2. Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road

Designated Zones (Ras Al Khaimah)
1. RAK Free Trade Zone
2. RAK Maritime City Free Zone
3. RAK Airport Free Zone

Designated Zones (Fujairah)
1. Fujairah Free Zone
2. FOIZ (Fujairah Oil Industry Zone)

Art. 2 of the Decision recognizes the Cabinet the authority to amend the list of Designated Zones by addition, deletion or amendment.

Art. 3 of the Decision decrees that the Minister of Finance shall issue the required decisions to implement the provisions of the Cabinet Decision.

Regarding the Designated Zones the transfer of Goods between the Designated Zones – according to Art. 51 of the VAT Law – will be exempted from tax, subject to two conditions i.e. that the Goods, or part thereof, are not released, and are not in any way used or altered during the transfer between the Designated Zones and where the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law.

Besides, where Goods are moved between Designated Zones, the Authority may require the owner of the Goods to provide a financial guarantee for the payment of Tax, which that Person may become liable for should the conditions for movement of Goods not be met.

Art. 4 of the Decision states that the implementation of the Decision shall be implemented as of 1 January 2018.

B. Cabinet Decision on Healthcare.
This decision provides suppliers, customers and consumers of healthcare services with confirmation that their supplies and purchases are subjected to a special tax treatment.

Art. 1 of the Decision defines:
“Medications” as “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 diagnosis, treating, healing, relieving or preventing diseases, or renewing, correcting or rehabilitating the function of body organs”; and
“Medical equipment” as “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”.

Art. 2 of the Cabinet Decision states that the supply of Medications and Medical Equipment registered with the Ministry of Health and Prevention, or imported with its permission or approval, shall be subject to tax at zero rate. The Cabinet Decision follows the provisions of Art. 44 and 45 of the VAT Law that provide that the supply and import of Goods and Services specified in the Art. 45 made by a taxable person shall be a taxable supply subject to the Zero Rate. Art. 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 subjected to zero-rate.

Art. 3 of the Cabinet Decision authorizes the Minister of Finance to issue the required decisions to implement the provisions of the Cabinet Decision.

Also this Decision – according with the Article 5 – has a retrospective effect starting from 1 January 2018.

C. Conclusion.
The implementation of the regulation is a complex process that requires time and these two Cabinet Decisions are very important in the development of the legislative system concerning VAT law.

A crucial aspect of the two decisions is the provision of their retroactivity because such effect jeopardizes the certainty of the law and, subsequently, the certainty of the related sanctions.

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