UAE VAT-Free Special Offers: FTA Clears Major Misconceptions

The term ‘VAT-free special Offers’ have prompted many experts into pondering over the tax treatments of ‘No VAT Special Discounts’ in the UAE. The Federal Tax Authority (FTA) has also taken note of such ‘VAT-free’ sales and issued a public notification that bursts the bubble of sellers promoting such discounts. The clarification VATP020 serves as guidance on the VAT treatment of promotions where the seller absorbs VAT on promotional goods. FTA says referring to “VAT-free special offers” is misleading and contrary to the VAT legislation since the goods or services are not supplied free of VAT.

As per the new clarification, VAT-registered businesses are not allowed to advertise taxable goods or services as free of VAT. The businesses should also not sell such taxable goods or services without accounting for 5% VAT, except where the supply qualifies for zero-rating. Businesses can avail the advice of registered tax agents in Dubai for further insights on the VAT treatment of promotional goods. This article sheds light on the major legal aspects the VAT-registered businesses should take care of:

Liability to Impose VAT

If the seller is a taxable person, the seller should charge 5% VAT on the supply of all goods and services in the UAE as per Article 3 of the VAT Decree-Law. This is mandatory except where the Decree-Law explicitly provides zero-rating or exemption.  In promotional campaigns that state the supply of promotional goods is VAT-free, the seller has the legal obligation to charge VAT on these supplies.

This is because the VAT is payable on taxable supplies and the seller has no right to decide whether or not VAT should be imposed on a supply. The seller may, however, make a commercial decision to offer a discount equivalent to the amount of VAT. If still confused about the VAT treatment of promotional goods, seek the assistance of registered tax agents in Dubai, UAE.

“VAT-on-us” promotions

Sellers are allowed to make a commercial decision to absorb VAT which will enable them to make the price of promotional goods more attractive to potential customers. These are in general termed as VAT-on-us promotions. In such instances, the seller is deemed as providing a discount to the buyers which is equal to the VAT amount imposed on the promotional goods or services.

The value of the discount is the amount by which the consideration is reduced. This can be illustrated in a simple and straightforward example. If a car’s normal price is AED105,000 and a special VAT-on-us promotional price is AED100,000, the seller is considered as providing an AED5,000 discount to its customer.

VAT Inclusive Prices

Article 38 of VAT Decree-Law states that the advertised price of taxable supplies must include the VAT. As per Article 27(1) of the Executive Regulation, in the case of a taxable supply, the published prices shall be inclusive of VAT. According to Article 27(2) of the Executive Regulation, the taxable person may, however, declare VAT-exclusive prices if the goods or services will be exported or where the customer is registered for VAT.

This means that even though the businesses explicitly advertise prices as VAT-free as part of their promotions, the price charged to the customer should include VAT. It is the responsibility of the businesses to determine the exact amount of the VAT payable. Also, the businesses are required to ensure compliance with the rules in respect of the publishing prices.

When the customer pays for the promotion good, the amount will constitute the VAT inclusive consideration irrespective of whether the promotion is publicised as VAT-free or not. Consider this example: a motor vehicle is advertised for AED100,000 “VAT-free” during the promotional period and the consideration for the supply is AED100,000. However, the seller is required to account for AED4,761.90 VAT (VAT = 100,000 x 5/105 = 4,761.90) in its tax return. This is mandatory irrespective of the wording the seller used during the marketing campaign. Registered tax agents in Dubai can assist businesses in complying with the UAE VAT Law.

Tax invoices

The FTA mandates that every tax invoice issued for the taxable promotional goods must meet the conditions and requirements listed in Article 59 of the Executive Regulation. Further, the rate of tax, tax amount and the gross amount payable in AED for each taxable good or service supplied must be reflected on the tax invoice. The expert advice of registered tax agents in Dubai will come in handy for the businesses while issuing the tax invoices for promotional goods.

Jitendra Chartered Accountants (JCA) – A Registered VAT Consultancy Firm in Dubai

Many retailers in Dubai offer discounts on their products or services to lure potential customers during a promotional period. Most of these businesses use the term ‘VAT-free special discounts’ while selling the products in the promotional period. However, according to the FTA, this term is misleading and against the UAE VAT Law as goods and services are not supplied free of VAT.

This poses challenges to the businesses as they need to understand how to account for VAT on promotional goods. However, the businesses can avail the services of registered tax agents in Dubai, UAE such as Jitendra Chartered Accountants (JCA) to easily account for VAT in the UAE. JCA offers reliable VAT consultancy services in Dubai which is trusted by businesses cutting across industries. JCA’s VAT consultancy services in Dubai, UAE include VAT registration, VAT deregistration, VAT Return Filing, VAT reconsideration services etc. Complying with UAE VAT Law is not a big deal if the businesses hire JCA as their registered tax agents in Dubai, UAE.