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| 12 February, 2018

Dubai free zone still seeking ways to free commodities firms from VAT liabilities

Executive director says talks ongoing "at the highest level" to protect certain activities.

Image of JLT used for illustrative purpose. Almas Tower is located on its own artificial island in the centre of the Jumeirah Lakes Towers Free Zone scheme, the tallest of all the buildings on the development in Dubai. The Dubai Multi Commodities Centre (DMCC), the developer of the tower has its corporate offices in Almas Tower.

Image of JLT used for illustrative purpose. Almas Tower is located on its own artificial island in the centre of the Jumeirah Lakes Towers Free Zone scheme, the tallest of all the buildings on the development in Dubai. The Dubai Multi Commodities Centre (DMCC), the developer of the tower has its corporate offices in Almas Tower.

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The Dubai Multi-Commodities Centre (DMCC) is still attempting to gain recognition as a 'designated zone' in order to gain exemptions for certain trading activities under the new value-added tax (VAT) regime, one of its directors has said.

Speaking to Zawya on the sidelines of the Global Commodity Outlook Conference in Dubai, Sanjeev Dutta, DMCC's executive director, commodities, said that DMCC officials had "tried our best, and are still trying, to work within the parameters to create a designated zone status" for the district, which also encompasses the Jumeirah Lake Towers residential area.

The Federal Tax Authority, the body responsible for overseeing the new VAT regime in the United Arab Emirates, published a list of the 20 areas that were granted 'designated zone' status last month. Most (but not all) of these were directly connected to ports and airports, where goods are often re-exported after their arrival. The Dubai Airport Free Zone, Jebel Ali Free Zone, the Hamriyah Free Zone in Sharjah and the Fujairah Oil Industry Zone are all examples.

The VAT executive regulations published in November defined a designated zone as "a specific fenced geographic area (that) has security measures and Customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area".

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Although DMCC does not meet this criteria - it is not a fenced zone with customs controls in place, for instance - Dutta told Zawya that it has different characteristics to many of the country's other free zones.

"We are not only about issuing visas, we're also about creating a commodities business. That's the differentiator between us and the other free zones. So with that vision in mind, it's quite obvious that we would want to conserve and protect trade."

Given the lack of designated status, companies which trade in commodities - typically a low-margin business - that look to add some value (through the roasting of raw coffee beans, for instance, or the polishing of rough diamonds) find that they currently have to pay the standard 5 percent rate of VAT on goods once they have been imported into the UAE.

Dutta indicated that it was too early to give a view on what impact the introduction of VAT has had on trade for commodities companies operating within its free zone, stating that "statistics are only coming out now".

"But having said that, I think this is a very temporary situation we are in," he argued.

"We are more than confident that we will find a solution because people at the highest level, both from DMCC and the government authorities, we're working together... with the FTA as well and the Department of Finance as well to try and find an amicable solution."

He said that efforts need to be made "to understand what the trade is", pointing out that for rough diamonds, for instance, their entry and exit into the UAE is already closely controlled.

"And the fact that we are now the largest vertical diamond market in the world and one of the top destinations for diamonds... I mentioned in my speech that collectively with metals and stones we are looking at a $75 billion throughput, so who would be not sensitive to retaining that sort of trade?"

Speaking at the Dubai Diamond Conference last November, the former chairman of the Dubai Diamond Exchange, Peter Meeus, had called for certain types of diamond to be considered as a commodity and therefore be zero-rated.

“The same zero tariff is currently disbanded in all other diamond centers across the globe,” Meeus said.

(Reporting by Michael Fahy; Editing by Shane McGinley)

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