Deemed Supplies Under UAE VAT Law: Key Insights for Taxable Entities

The UAE charges VAT at the standard rate of 5% on taxable supplies generally but there are many factors that determine what constitutes a supply as per the UAE VAT Law. The VAT term ‘supply’ includes all types of supply of goods or services supplied by a registered person for consideration by and in course of carrying out a business. In most instances of VAT all the specified elements that define a supply will be present and you can charge VAT at 5% but a transaction can also take place in extraordinary instances that do not meet the conditions of supply.

Related: How VAT is Applicable to Shipping & Logistics Industry in the UAE

For example, there are situations where a business may supply goods or services free of cost or as freebies or for personal consumption. In such cases, the VAT is levied based on deemed supply provisions in the UAE VAT Law. Understanding deemed supplies in the context of VAT is important for taxable entities and the best VAT consultants in Dubai, UAE could guide them with expert advice.

What is a Deemed Supply Under UAE VAT Law?

As per Article 11 of Federal Decree-Law No 8 of 2017 on VAT, the following cases would be considered as deemed supply in the UAE:

1. A supply of goods or services, which constituted the whole or part of a Taxable Person’s assets. However, it is no longer considered as such since it was made without consideration.
2. The transfer by a Taxable Person of Goods that constituted a part of his business assets from the State to another Implementing State or from the Taxable Person’s business in an Implementing State to the Business in the State, except in cases where such transfer is

(a) Considered temporary under the Customs Laws

(b) Made part of another Taxable Supply of these Goods

3. Supply of Goods or Services for which Input Tax may be recovered but was used for non-business purposes only and such supply will be considered as deemed to the extent of the non-business purpose
4. Goods and Services that a Taxable Person owns at the date of Tax Deregistration

What Comes under the Deemed Supply Provision?

As per the UAE VAT, deemed supplies encompass a broader range of transactions such as:

1. Supply of goods or services that are made free of costs such as free samples and gifts
2. Personal use of business assets
3. Taxable goods that remain unsold in the stock when the taxable entity becomes subject to VAT deregistration in the UAE or stops making taxable supplies

The VAT registrant is required to pay tax at the applicable rate if the deemed supply provisions are attracted as per the VAT Law in the UAE. However, the UAE VAT Law also provides exemptions by which the supply will not be considered as a deemed supply. Consult with expert tax agents in the UAE for a deeper understanding of the VAT rates when the deemed supply provisions are applied.

Exemptions to Deemed Supplies as per VAT Law in the UAE

As per Article 12 of the UAE VAT Decree-Law, as s supply is not considered as deemed supply in the following instances:

1. If the supplier has not recovered any Input Tax for the Goods & Services
2. If the supply qualifies as an Exempt Supply as per VAT in the UAE
3. Cases where the recovered Input Tax has been adjusted as per the Capital Asset Scheme
4. If the value of the Goods for each recipient within a 12-month period doesn’t exceed AED 500 and supply if classified as free samples or commercial gifts
5. Where the total output taxes on the deemed supplies per person for a 12-month period is less than AED 2000

Tax Invoices for Deemed Supplies as per UAE VAT

Deemed supplies are not considered as actual supplies and this engenders confusion among the tax registrants whether to keep records or issue tax invoices for gifts or free samples. Tax agents in Dubai often get such queries from their clients and for keeping up with better compliance standards, the taxable entities should issue the invoice for the making deemed supplies. Tax agents in Dubai recommend the businesses to issue an original tax invoice to the recipient of goods or services and it is applicable to business assets supplied without consideration such as free samples and gifts.  In case the recipient of goods or services is not available, the taxable businesses should keep the records for making the deemed supplies.

Seek Advice From VAT Consultants in Dubai

Taxable entities need to understand how and when they should apply the provision of deemed supply and also the exemption of deemed supply. Generally, the businesses should consider a transaction as a taxable supply unless the exemption is applicable. If the conditions of exemptions are not applicable the supplier should charge VAT on the transaction for supplies such as gifts or samples. To have clarity on the applicability of deemed supply provision and the exemptions, the VAT registrants need the expert assistance of the best tax agents in Dubai such as Jitendra Chartered Accountants (JCA). JCA is a registered tax agent with the Federal Tax Authority and provides specialized Tax consultant services to the businesses.