Treatment of VAT on Discounts

VAT in UAE has confused businesses over discounted business invoices. The discount concept is not new for businesses, but VAT calculation for these discounted invoices is new.

Discount is termed as a reduction in price. It is one of the oldest sales strategies to convince people to purchase.

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Provisions Related to Discount in UAE VAT Law

VAT law provides guidelines for ways to treat discounts provided on the supply of goods and services. For UAE VAT, the value of supply should be reduced in the discount proportion made before or after the date of supply. In other words, the VAT will be charged on the value which should be arrived after considering the discount.

The discount is reduced from the value of supply if the following conditions are met:

  • When the customer has benefited from the reduction in price
  • The supplier funded the discount

The above-mentioned are quiet that the discount should be passed on to the customer and more importantly, the discount should be funded by the supplier

Application of VAT

  • VAT application on discounts, if a business offers discounts to its customers:
    If a business offers an unconditional discount and the customer pays the discounted amount, then the vat value is based on the discounted amount.
  • Discounts for prompt payment When the business offers a discount on the condition that the customer pays within a specified time, then the value is based on the discounted amount even if the customer does not take up the offer. But if the terms allow the customer to pay in installments, the value is based on the amount the customer actually pays.
  • Contingent discounts
    If the business offers a discount on a guarantee that something will happen in the future. in the case in a condition that the customer buys more. If the customer later earns the discount, the value is then reduced and can be adjusted by issuing a tax credit note.

VAT Services in UAE

Any taxable person or business has to understand the treatment of discount amount when entering a transaction, or by editing a transaction if it doesn’t have any payments or allocations applied. If you are confused about the treatment of VAT in Dubai, seek guidance from VAT experts in UAE.

We take time in understanding every client’s situation and have the flexibility to tailor our services to a particular client’s requirements. Call us for further discussion on VAT and we would be glad to assist you.

How to Register for VAT?

Taxpayers can take the help of the Federal tax authority in UAE for VAT registration in UAE.

Is VAT mandatory in UAE?

UAE imposes VAT on tax-registered businesses at a 5 % rate on the taxable supply of goods or services.

what are the Documents Required for VAT Registration?

  • business trade license
  • passport copies
  • emirates id

Who can Claim a VAT Refund in UAE?

Visitors under a UAE visit visa can reclaim vat on the purchases made in UAE. It can be recovered through a fully integrated electronic system that connects retailers in the tax refund for tourists’ scheme.