Treatment of VAT on Discounts

VAT implementation in UAE has confused businesses about the treatment of VAT on Discounted price in UAE. The concept of discount is not new for business for the businesses but the calculation of VAT on the discounted invoices in new for them.

Discount is termed as a reduction in price. When the seller deducts the discount from the gross or total price, and the buyer is supposed to pay the net amount. It is one of the oldest sales strategies that provoke the buyer to buy more or drive him to buy the product or to make an on-time payment, especially in the case of the B2B market.

Some of the provisions related to discount in UAE VAT Law

VAT law provides the guidelines for ways to treat discount provided on the supply of goods and services. In UAE VAT, the value of supply should be reduced in the proportion of discounts 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.

In case If the value of supply is AED 10,000 and discounts 500 the value of supply will be AED 9500 which is arrived after considering the discount value

The discount is reduced form the value of supply if the following conditions which are prescribed in UAE VAT Executive Regulations 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:
    Unconditional discounts If a business offers a customer an unconditional discount and the customer pays the discounted amount, then the 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 by 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 Federal tax authority in UAE for registration of tax in UAE.

Is VAT mandatory in UAE?

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

what are the documents required for VAT registration?

  • business trade license
  • passport copies
  • emirates id

are some of the important documents required?

Who can Claim VAT Refund in UAE?

The visitors entering the UAE claim refund on VAT paid on purchases they made during their stay in the UAE. recovery of payment will be done through a fully integrated electronic system which connects retailers in the tax refund for tourists’ scheme