VAT treatment for VAT-free promotions

VATP020 was published by the UAE Federal Tax Authority (FTA) to give the public clarification on the VAT treatment for promotions. It’s intended for businesses that provide clients or customers gifts in the form of goods and/or services, businesses that give away goods that are samples for supplies, those who are involved with business promotion schemes, and/or are involved with the issue, redemption or supply of vouchers or coupons.

The guidance provided by the FTA isn’t a part of the law; however, it does not override it either. It’s the local VAT legislation’s interpretation and current practice.

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What is the VAT treatment for VAT-free promotions?

VAT-free promotions in UAE are promotions wherein a taxable entity undertakes in order to reduce the prices of supplies by the amount that’s equivalent to VAT. The net effect is to give a discount with VAT only due on a net or the discounted amount charged.

Note: where a seller is a registered business or taxable entity, it is required in charging the standard VAT rate, which is at five percent, for a supply of product or service. The exception is when the UAE VAT law has explicitly provided the zero-rating for VAT or VAT exemption.

For any promotional campaign which states a supply of a promotional good is free from VAT, it is the seller that has the obligation in charging VAT for a supply as VAT will be payable on any taxable supply. The seller isn’t entitled in deciding whether or not there should be VAT imposed on a specific supply. A seller, however, can make the commercial decision of offering a discount that is equivalent to the amount of chargeable VAT.

Read also: Understanding VAT In UAE: Should You Deregister?

Is VAT charged on deals and discounts?

VAT may be charged, depending on the deal or discount.

Offer How VAT is charged
Discounts VAT will be charged not on a supply’s full price but on its discounted price
Gifts VAT is charged on the full value of the gift, subject to conditions

Money-off vouchers and coupons No VAT will be due when a supply is given away free during the time of purchase; otherwise, VAT will be due for the price that was charged

Multi-buys VAT will be charged on combined price when items have a single VAT rate; otherwise, VAT will be apportioned, depending on the mixed-rate goods
Face-value vouchers No VAT will be due

Is VAT charged on a free product or service?

There is no need to pay the VAT for things such as free samples should they meet the terms and conditions set by the FTA and UAE Executive Regulations on VAT.

Supplies Condition to meet for the elimination of VAT

Free samples Supplies must be used ONLY for marketing purposes, plus provided in a specific quantity that allows potential customers in testing the goods

Free loans for business assets Cost of hiring asset will be included in something you sell to the customer

Free services There is no payment, service, or product given in return for the services

The latest public clarification provided by the FTA, VATP020, also stated all tax invoices that are issued for the taxable promotional supplies are to meet the requirements that are set out in UAE Executive Regulations Article 59.

Read also: Is VAT On Insurance Taxable?

What are the requirements for tax invoices for the purpose of VAT in the UAE?

As per the guidelines that are issued by the FTA, the contents of tax invoices are as follows:

Company name and logo – company name must be written clearly on top of tax invoices. A business is to make sure its name is the same as it is in the company registration document. Should the business have a logo, tax invoices should have them as well.

TRN or Tax Registration Number – the company name and logo have to be followed with the company’s tax registration number. The TRN will help the business when filing its VAT returns, plus the buyer will need the TRN of a supplier when claiming for VAT amount that it paid for business purchases.

Date of invoice issuance – this is the date that the VAT invoice was issued.

• Invoice number – this is a unique serial number that easily identifies every tax invoice.

• Purchase order number – UAE VAT invoices often include the purchase order number as there are buyers that request for them. This can be the same as the PO number.
• Due date – if the payment of a VAT invoice will be due on a later date, provide the due date.
• Contact details and address – include details of the business (seller), such as details of communication channels and company address.
• Description – it is the part of the tax invoice that contains details of products or services that are sold to a customer or client.

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