Bonus/Incentive VAT Treatment

In a case where local/Foreign Principal pays Quaterly/Annually an amount of Bonus/Incentive against acheving the Targets of Amount/Quantity of supplies upon satisfying the conditions of contract. There is no any marketing or any extra services are being provided to Principals against such payments. 

 

What is VAT treatment on such Bonus/Incentive-These are out of scope ? 

Replies
SAJITH NAIR18/11/2020 21:09:14

The terminology used ie Bonus/Incentive could be misleading. if these are allowed by overseas supplier for achieving a target volume of purchases from them, the real nature of such bonus/incentive is that of a discount rather than consideration against services. So these cannot be considered as supply made by UAE entity to it's overseas supplier. However one needs to review the contractual terms as in many cases these also are provided against promotion of products of the overseas supplier. This is my view and would recommend review the terms and perhapstaking an official clarification from FTA as a prudent measure.

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Nusrat Abbas19/11/2020 09:54:59

The Term Bonus/Incentive is used here only to achieve local Sales Target. It is not related to purchase target from Principals. It is purely to sell products in local market as per targets and accordingly an amount is paid to retailer & treated as Bonus/Incentives.

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SAJITH NAIR19/11/2020 12:56:54

This takes nature of Marketing income from sales promotion/marketing activities provided to the overseas principal. Hence this would be taxable supply and not out of scope as services are provided and consideration is received. One needs to evaluate whether this can be zero rated under Article 31 of ER, specifically Article 31(1a) and Article 31(3).

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