UAE Vat-Free Promotions and Tax

“VAT-free” special offers

This article , based on public clarification VATP020 discusses  “VAT-free special offers” as promotions to entice prospective buyers to purchase goods or services within a promotional period. Where the seller is a taxable person, the seller is, according to Article 3 of the Decree-Law, required to impose 5% VAT on the supply of all goods and services in the UAE, except where the Decree-Law 1 explicitly provides for zero-rating or exemption.

Based on the above, any promotional campaign stating that the supply of promotional goods is “VAT-free” is misleading as the seller is obliged to impose VAT on these supplies. The seller may, however, make a commercial decision to offer a discount equivalent to the amount of VAT. As a consequence, VAT is always payable on taxable supplies and the seller is not entitled to choose whether or not VAT should be imposed on a supply.

Discounts

Sellers may take a commercial decision to absorb VAT in order to make the price of promotional goods more attractive to potential buyers, these are commonly referred to as “VAT-on-us” promotions. In these instances the seller is regarded as granting a discount to its customer which is equal to the VAT amount imposed on the promotional goods or services.

For example, if a motor vehicle’s normal price is AED105,000 and a special VAT-on-us promotional price is AED100,000, the seller is regarded as providing a AED5,000 discount to its customer.

According to Article 39 of the Decree-Law 2, in the case of a discount, the value of the supply is reduced in proportion to the discount. Article 28(3) of the Executive Regulation 3 confirms that the value of the discount is the amount by which the consideration is reduced.

Even though a business may expressly advertise prices as “VAT-free” in respect of retail sales as part of business / marketing promotion labelling, for VAT purposes, the price charged to the customer shall include VAT. Consequently, the onus will be on the business to determine the correct amount of VAT payable. Further, businesses should comply with the rules in respect of publishing prices.

For example, if during the promotional period a motor vehicle is advertised for AED100,000 “VAT-free”, the consideration for the supply is AED100,000. The seller is therefore required to account for AED4,761.90 VAT (VAT = 100,000 / 21 = 4,761.90) in its tax return, regardless of the wording used in the promotional campaign. Tax invoice , article 59 of regulations to be met.

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.