Three laws define a UAE “free zone”. A store can meet one without the others.

In the UAE, “free zone” can mean three different things, each set by a different law. An emirate law decides who may own a company and which laws it is exempt from. A Gulf customs law decides where customs duty is suspended. A federal tax regulation decides where value added tax (VAT) does not apply to goods. A store can meet the first and fail the third. The name over the gate does not tell you which.

Published by ArtisDomus, written by Polina Surina.

For what happens to a work at the border first, see customs duty on a painting imported into the United Arab Emirates. For the general customs treatment of free zones, see moving a collection from Europe to the Gulf.

The first is a company question, and the emirate answers it. Dubai Law No. (3) of 2020 Concerning the Dubai Multi Commodities Centre confirms the DMCC, first set up by the Resolution issued on 1 May 2002, as a free zone. It also makes the DMCC Authority (DMCCA) a public authority with legal personality, financial and administrative independence, and the legal capacity to undertake all acts (art. 3). It repeals the 2002 Resolution and Regulation No. (4) of 2002 (art. 33(a)).

The second is a customs question, and it is answered above the emirate. Each State creates its customs free zones by its own legal instrument. A resolution of the minister or the competent authority sets their rules and conditions (art. 77, Common Customs Law of the GCC States). A zone exists for customs purposes because a State created it as one.

The third is a tax question, and it is answered federally. The VAT rules sit in the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax, made by Cabinet Decision No. 52 of 2017. Under it, a “designated zone” named by a Cabinet decision is treated as outside the State and outside the Implementing States, subject to three conditions (art. 51(1)). “The State” is the UAE; the Implementing States are the Gulf states applying VAT. The status comes only from a Cabinet decision naming the zone.

The three are independent. An emirate law can make a zone a free zone with no Cabinet decision naming it a designated zone. A Cabinet decision can name a designated zone and change nothing about who may own a company there. There are three separate lists. Anyone storing a painting needs to know which lists a given store is on.

Three articles of Law No. (3) of 2020 show what the emirate has done, and where it stops. Article 17 covers customs duties. Goods brought into the DMCC, or made, produced or developed there, are exempt from customs duties. No customs duty is charged when they are exported outside the UAE (art. 17(a)). Goods stored in the DMCC, or used in any operations there, are also exempt (art. 17(b)). But goods moved from the DMCC into the customs zone of the emirate count as imported from abroad for the first time. Customs duty then applies under the tariff in force (art. 17(c)).

Article 18 covers tax. DMCC companies (“DMCC Establishments”) and their employees are exempt from all taxes, including income tax, on their operations in the DMCC. They are also free of any restriction on moving share capital, profits or wages, in any currency, to anywhere outside the DMCC. All of this applies “without prejudice to applicable legislation in the UAE”, and that legislation includes the federal VAT law. An emirate cannot exempt anyone from a federal tax, and Article 18 does not try to.

Article 21(a) shows what the Dubai law does achieve. For their operations in the DMCC, the DMCC and DMCC companies fall outside the legislation, authority and powers of the Dubai Municipality and the Department of Economic Development. That carve-out does not cover laws on public health and safety, the environment and food control. Nor does it cover any law that expressly says it applies to free zones. So the exemptions work against two Dubai departments. The Federal Tax Authority is not named, and an emirate law could not name it.

DMCC describes itself as a Government of Dubai Authority, set up in 2002 to establish Dubai as a commodity trading and enterprise gateway to the Middle East and beyond. It calls its free zone “a geographically designated and defined area” in the United Arab Emirates. It also says the zone is a qualified free zone under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses, as amended). DMCC says this status lets businesses in the zone pay a 0% corporate tax rate on qualifying income, as set by the relevant Cabinet and Ministerial decisions on corporate tax.

That statement is precise, and it covers one tax: corporate tax on a business’s income. VAT on goods is a separate matter with its own source. Qualifying free zone status comes from the corporate tax legislation. Designated zone status comes from a Cabinet decision made under the VAT law.

The phrase “geographically designated and defined area” is the one that misleads. It describes a fenced piece of ground. A fenced area is also the first condition in Article 51(1) of the VAT Executive Regulation, so the two are easy to confuse. But Article 51(1) first requires a Cabinet decision naming the zone, and then three conditions on top. A store that meets the conditions still needs the decision.

There is no limit on how long goods may stay in free zones and duty-free shops (art. 78(c), Common Customs Law). This is the only part of Gulf storage with no clock running, and it is why stores exist there. Goods taken out of a free zone into the customs office count as foreign goods. This holds even if they include local raw materials, or articles on which duties and taxes were paid before they entered (art. 85). Goods brought from free zones and duty-free shops into or out of the country also count as foreign goods (art. 88). For the full customs treatment of these zones, see moving a collection from Europe to the Gulf.

The Dubai law says the same from the emirate’s side. Goods moved from the DMCC into the emirate’s customs zone count as imported from abroad for the first time. Customs duty then applies under the tariff in force (art. 17(c), Law No. (3) of 2020). A painting carried from a store in the zone to a villa in the same city is imported on the day of that journey.

The federal customs authority puts it in one line, in its requirements for the Gulf customs union’s single entry point. Goods imported from free zones pay duty when they leave those zones.

All three agree, on the point that catches owners out. Storage in a customs free zone only postpones the duty, until the day the work comes out. The rate is the tariff in force on that day. Goods taken from free zones and duty-free shops into the local market pay the customs tariff in force at that time (art. 15, Common Customs Law).

A designated zone named by a Cabinet decision is treated as outside the State and outside the Implementing States if three conditions are met (art. 51(1), VAT Executive Regulation). First, the zone is a specific fenced area, with security measures and customs controls that monitor people coming in and out and goods moving to and from it. Second, the zone has internal procedures for keeping, storing and processing goods. Third, the zone’s operator complies with the procedures set by the Federal Tax Authority.

Anyone choosing a store from a list should read Article 51(2). If the zone changes the way it operates, or breaches any condition on which the Cabinet named it, it is treated as inside the State. The status is conditional, and only the operator’s conduct keeps it.

Goods brought into a designated zone from outside the State are not treated as imported into the State, so their arrival is outside VAT (art. 47(1)(b)). Moving goods between designated zones is also free of VAT, on two conditions. First, the goods, or any part of them, are not released, used or altered in any way during the transfer. Second, the transfer follows the customs suspension rules of the GCC Common Customs Law (art. 51(3)). The Federal Tax Authority can require the owner of the goods to provide a financial guarantee. It covers the tax the owner would owe if the conditions for the move are not met (art. 51(4)).

Two events turn stored goods into an import without anyone moving them (art. 51(9)). Both concern goods in a designated zone on which the owner has not paid tax. The first is when the owner consumes the goods. The exception is goods built into, attached to, forming part of or used to produce another good in a designated zone. That other good must not itself be consumed. The second is a shortage in the goods. For a collector, “shortage” is the word to stop at. A work that cannot be produced at a stock count is a shortage, and a shortage is an import.

Article 51(6) is one sentence, and it is the one most often missed. Services supplied in a designated zone are treated as supplied inside the State. The exception in Article 51(7) is narrow and does not reach storage. It applies only where all five of these are true. The services are shipping or delivery services supplied directly in connection with goods whose place of supply is outside the State under Article 51(5)(b) and (c). The same supplier supplies both the goods and those services. That supplier is non-resident and not registered for tax. The goods are sold through an electronic sales platform. And the platform’s owner is not the supplier of the goods.

Article 51(5) covers goods supplied inside a zone. When goods are supplied in a designated zone to someone, to be consumed by them or by another person, the place of supply is in the State. There are three exceptions. First, the goods were meant to be built into, attached to, made part of or used to produce another good in the same designated zone. That other good must not itself be consumed. Second, the goods were delivered to a place outside the State. The supplier keeps commercial or official evidence of that, plus customs evidence that the goods left the zone. Third, the goods were moved from the zone to a place inside the State, and the supplier keeps official evidence that VAT was charged on that import.

Article 51(10) deals with residence. Anyone established, registered or resident in a designated zone is treated as resident in the State for VAT purposes.

For a stored collection, the result is simple. The goods may sit outside the State. But warehousing, handling, condition reports and conservation are services, supplied inside the State. Their invoice is a domestic invoice.

ArtisDomus works through four steps, in this order.

The three statuses were made for three purposes other than storing art. A company law wanted foreign ownership. A customs law wanted goods to sit without duty. A tax law wanted goods to leave the tax base while staying in the country. A collection placed in a zone relies on all three at once. It holds a document for each only if the owner asked for one.

A summary of the law. It is not legal or tax advice.