In the VAT system, the tax shall be imposed on value addition made at each stage of the supply chain. The supplier shall collect the VAT from the customers on the value of supply made to them and can recover the VAT paid by him on his inwards supply as an input tax credit. Thereby, the entire incidence of tax will be passed on to the final consumer.
The principle of VAT on supply is charged based on the time of supply rules in the VAT Law. According to UAE VAT Law, we need to consider the supply of goods or services, its consideration and lace of its supply to determine the taxability of the supply. It is easy to identify the transaction and its taxability in normal trade or sale to customers. But practically there are occasions where a business may supply goods or services at free of cost or as gifts or for personal consumption. When such supplies are made, we need to check for deemed supply provisions in the UAE VAT Law. In the UAE VAT, deemed supplies cover a broader range of transaction namely:
If the deemed supply provisions will be attracted and the registrant shall pay tax at the applicable rate. At the same time, the VAT law also provides certain exemptions by which supply may not be considered as deemed supply.
According to the VAT Law in the UAE, the supply will not be considered as deemed supply in the following instances:
Let us discuss these cases with the help of some practical example. ABC LLC is a cosmetic trading company having retailed outlets across the UAE. The company has made the following transaction during the twelve months period ended on 31st July 2020.
Hope the above example helps to understand the applicability of deemed supply provision and when the exemption of deemed supply can be applied. It should be understood that the default rule will be to consider a transaction as a taxable supply unless an exemption applies. So, if conditions for exemption are not satisfied, then the supplier should charge VAT on the transaction including for the supplies made as gifts or sample.
Emirates Chartered Accountants Group is a Registered Tax Agent with the Federal Tax Authority (FTA) as Emirates International Chartered Accountants Group providing exclusive Tax Agency Service to businesses in the UAE. Our Tax Professionals are highly qualified and well versed with the UAE Tax Law with the practical implementation of VAT in UAE and Bahrain. We understand that every business is different from the other. Hence, each of our services is tailored as per your business needs.
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