Determining Single Composite & Multiple Supplies is Vital in Dealing with VAT in the UAE

Taxable persons in the UAE need to be wary of supplies of goods & services composed of multiple elements combined in a single transaction. When such supplies occur, the taxpayers need to determine if they are making multiple supplies or single composite supplies. In the case of a ‘Multiple Supply’, the supplier should treat each element of the supply separately for VAT purposes.

If a single composite supply is made, the supplier needs to understand that all elements receive the same VAT treatment. The task of identifying such supplies and determining the VAT rates associated with the supply often leaves the supplier confused. However, the assistance of prominent VAT consultants in Dubai could help them ease the intricacies. Here we are addressing the issues associated with determining Multiple and Single Composite Supplies.

Determining whether Supply is Multiple or Composite

Article 4 of the VAT Executive Regulations provides key insights into supplies of more than one component. As per the law, a Single Composite Supply Occurs in the following cases,

  1. Cases where there are a principal component and additional components that are necessary to the making of the supply. The additional components should normally accompany the supply but are not a significant part of it.
  2. When there is a supply that has two or more elements so closely linked as to form a single supply which it would be impossible or unnatural to split.

Also, the businesses should ensure that the supply is not separately identified or charged by the supplier. Further, all components of the supply should be supplied by a single supplier.

Where a Taxable Person supplies more than one component for one price, and the supply is not a single composite supply, then the supply of the components shall be treated as multiple supplies.

Understanding Single Composite Supply with Example

An airline service sells a customer an international business class ticket that comes with the benefit of lounge access. Here the international travel sought by the passenger is the principal component of the supply. The principal component, in this case, is subject to 0% VAT. The lounge access is an additional benefit that comes along with the principal component of air travel.

The lounge access could be purchased only along with the transportation service. It cannot be availed independently without first purchasing the transportation service. In this case, the lounge access doesn’t constitute an aim itself. Therefore, the entire transaction is subject to 0% VAT under the international transportation service.

Understanding Multiple Composite Supply with Example

Now, consider a case where the customer purchased an economy class ticket from an airline company. The ticket doesn’t include the lounge access benefit, but there is an offer where he can purchase access to the lounge at a discounted price. Here, the supplier should understand that the VAT rate may differ from the previous scenario illustrated previously.

In this example, the lounge access involves a clearly identifiable value that is separate from the principal component (international travel). The customer, in this case, is purchasing the lounge access by paying an additional amount which constitutes an aim itself. The supplier, in this case, needs to apply the VAT treatment as per the Multiple Supply Analysis with the lounge access component of the supply subjected to 5% VAT. Consult with reputed VAT consultants in Dubai for identifying the Multiple Composite Supplies and determining the applicable VAT rates.

Avoid Errors in Classification by Hiring VAT Consultants in Dubai

As illustrated through these two examples, the taxable persons should determine whether they are making single composite supplies or multiple composite supplies. Since VAT treatments may vary depending on the elements involved, the taxable persons should ensure that the supplies are receiving the right VAT treatment. The process also involves the risk of different interpretations from the FTA and the taxpayers. To ensure tax compliance, it is advisable to identify the supplies earlier for which VAT consultants in Dubai, such as Jitendra Chartered Accountants (JCA). JCA has highly qualified tax agents who could provide accurate insights on VAT rates on various goods and services. By availing of JCA’s services, the taxpayers can comply with the VAT as per FTA standards.

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