By Dilip Jain on 05 July 2021
FTA VAT Guidance on automotive sector ( VATGAM1)
The guide is applicable for supplies made by motor vehicle dealers in the UAE:
VAT treatment in various scenarios:
A |
Sale of cars |
Tax rate |
Date of supply/ when to charge tax- earliest of |
1 |
Outright sales |
5% |
|
2 |
Outright sales but periodic payments or consecutive invoices,
|
5% |
(1.VAT will only be due to the extent of the payment made or stated on the tax invoice 2. it does not exceed one year from the provision of the car )
|
|
Time to issue Tax invoice |
|
A tax invoice must be issued within 14 days of the date of supply .
|
|
Disbursement cases- |
No Vat |
|
3 |
Hire-purchase arrangements |
|
|
|
Stages of tax liability |
|
|
|
|
5% |
issue a tax invoice to the finance company for sale price |
|
|
5% |
|
|
|
exempt |
|
|
|
5% |
|
4 |
Hire-purchase arrangements- consecutive invoices |
5% |
Article 26 of the Decree-Law:
and when it issues invoices
|
|
|
5% |
If payments are received prior to issuance of the invoices |
5 |
Hire-purchase arrangements- Repossession of cars |
Out of scope |
no supply takes place for VAT purposes on account of repossession of the car and therefore no VAT implications arise at this point
|
|
|
|
finance company may have issued tax invoice(s) to a customer for a certain period but is not able to collect the debt before repossessing the car- adjust the output tax under the Bad Debt Scheme |
6. |
Trade in an old car for a new car |
|
two separate supplies:
|
|
sale of the new car |
5% |
no net-off the trade-in value of the old car against the sales price of the new car. |
7 |
Price display- inclusive of Vat |
5% |
must display, advertise, publish or quote VAT-inclusive prices with a stipulation that the price includes VAT. |
|
Price display- exclusive of Vat |
|
(a) Where the supply of car is for export; and (b) Where the customer is registered for VAT |
8 |
Sale to govt. diplomats |
5% (Vat refund scheme) |
foreign governments, international organisations, diplomatic bodies and missions, or an official thereof can seek a refund of such VAT incurred under the special VAT refund scheme |
9 |
Used car sale |
5% |
sale is made by a VAT registered supplier |
B |
Lease of cars |
5% |
contract will involve periodic payments or consecutive invoices, tax invoice to be raised on earliest of :
|
|
Salik charges |
5% |
The recharge of such a cost is subject to VAT and should be included in the taxable value of the supply |
C |
Export of cars |
|
|
|
Export by trader |
0% |
Conditions to satisfy:
|
|
Overseas customer arranges export |
0% |
|
|
documents |
|
|
|
Multiple sale transaction of cars |
0% |
|
|
Purchase returns after import |
|
|
D |
Warranty claims |
|
|
|
Warranty Included in car sale price |
Out of scope |
the supplier would not charge any extra fees for the warranty repair services provided during the specified period, no further VAT implications will arise at the time of providing the actual repair services. input tax incurred on carrying out the warranty repair services will be recoverable since it was incurred in the making of taxable supplies. |
|
Warranty separately purchased |
5% |
The supplier accordingly needs to account for VAT on the supply of the extended warranty. The actual repair services provided during the additional period would, however, not attract VAT |
|
Reimbursement of repair costs by distributors from manufacturers |
|
|
|
warranty services |
Out of scope |
distributor’s warranty for no extra charge is treated as a composite supply |
|
supply |
5% |
The supply made by the distributor under a warranty arrangement with the manufacturer is a separate supply for VAT purposes |
|
reimbursement of costs |
5% |
reimbursement of costs by UAE distributors from overseas manufacturers to carry out warranty repairs is subject to VAT at 5%. Reason-The service is being supplied directly in connection goods situated in the UAE. |
E |
Auctions |
|
|
|
Auctioneer- as marketplace - disclosed agency |
5% |
Sales is by principal agent to customer |
|
Commission |
5% |
auctioneer will charge a commission for auctioning services |
F |
Free promotional gifts |
|
|
|
Input Tax recovered |
5% |
Where the motor vehicle trader recovers input tax on the purchase of the gift and in turn supplies such a gift free of charge, the free supply will be subject to the deemed supply 12provisions |
|
Input Tax not recovered |
Out of scope |
the deemed supply provisions will not 13apply. |
G |
Discounts |
|
|
|
Discount to customer |
Out of scope |
Vat charged only on the discounted price. tax invoice issued by the motor vehicle trader must clearly state the discount offered to the customer in order to account for VAT on the discounted value. |
|
volume discount / bulk discount |
Out of scope |
manufacturer should clearly state the discount on the invoice. |
|
discount on achieving a sales target |
|
|
H |
Demo Car |
|
|
|
Genuine Reduced price |
|
The original manufacturer should issue a credit note to reduce the original sales price- for discount |
|
Price reduction for Marketing services |
5% |
motor vehicle trader will be required to issue a tax invoice |
Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.
You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax
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