UAE : FTA on VAT free offers

FTA on VAT free promotions: The Federal Tax Authority of the United Arab Emirates has published a public clarification on VAT free special offers (VATP020).This clarifies the VAT treatment of promotions where the seller absorbs VAT on promotional goods.

VAT registered businesses should not advertise taxable goods or services as free of VAT or sell such goods or services without accounting for 5% VAT, except where the supply qualifies for zero-rating.

Liability to impose VAT

Where the seller is a taxable person, the seller is required to impose 5% VAT on the supply of all goods and services in the UAE, except where the goods or supply qualifies for zero-rating or exemption.
In any promotional campaign stating that the supply of promotional goods is “VAT-free”, the seller has the obligation to charge VAT on these supplies as VAT is payable on taxable supplies and the seller is not entitled 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.

Discounts

Sellers may take a commercial decision to absorb VAT with “VAT-on-us” promotions to attract buyers. In these instances the seller is regarded as granting a discount which is equal to the VAT amount imposed on the promotional goods or services.

VAT inclusive prices

The advertised price of taxable supplies shall include the VAT. The taxable person may, or however, declare VAT exclusive prices if the goods or services will be exported or where the customer is registered for VAT.
Even though a business expressly advertises prices as “VAT-free” as part of promotion labelling, the price charged to the customer is considered to include VAT.

The amount paid by the customer for the promotional good will therefore constitute the VAT iclusive consideration, regardless of whether the promotion is published as “VAT-free” or not.

Tax invoices

Tax invoices issued for taxable promotional goods or services should meet all the requirements set out in Article 59 of the Executive Regulations. Consequently, the seller is required to reflect the rate of tax, tax amount and the gross amount payable in AED for each taxable good or service supplied on the tax invoice.

Reference: “VAT-free” special offers