VAT for Businesses Offering Sales Promotions

In the UAE, it’s absolutely crucial for businesses to understand tax treatments under VAT legislation.  Recently, the FTA issued a warning to the general public on VAT-Free Promotional Products. Vat registered sellers should follow UAE vat laws. 

It is misleading to conduct sales promotions that go by VAT-free as sellers are responsible in charging VAT on taxable transactions. Sellers may decide in collecting or giving discounts to customers; However, there’s no option to impose vat on these transactions. Sales Promotion should mention “VAT by seller” or “VAT on Us!” instead of “free from VAT

VAT for Businesses Offering Sales Promotions 

  • Sampling

    A business can supply samples of products in order to foster their profits. Free samples can be taken within deemed supply scope that is subject to conditions such as the business recovers VAT for concerning goods and services that are procured by them and the value of supplies in a twelve-month period is greater than Dhs 40,000. 

  • Fixed Amount Discount or Percentage-Based Discounts

    A business can offer clients with lump sum discounts or discount percentage on total selling price for products or services. For a discounted product, the customer needs to pay the reduced amount. VAT for the purchased goods or services will apply to value of the consideration that’s received by a customer following discount subject to full compliance with conditions that are laid in UAE VAT legislation. 

  • Discount Coupons

    Businesses can offer discount coupons that can be redeemed later. A discount voucher can be within scope of ‘vouchers.’ Depending onset conditions for redemption of discount vouchers, the same can be considered as discounts when customers redeem vouchers for the purchase of goods or services. 

  • Lottery or Raffle draws

    A customer can take part in a spin the wheel or raffle draw and get the change in winning a prize. To participate in a draw, the customer needs to spend a minimum amount. But there are some random draws that don’t require any purchase. Prizes distributed for the draws in newly opened stores will be within the scope of deemed supply.

  • Exchange or Trade-in

    The customer may be offered for product exchange with a new one resulting in the discounted price for the new one. Even so, old products that are returned by customers are considered as consideration that’s non-monetary and businesses are liable in paying VAT for consideration received including market value for non-monetary consideration. 

All UAE businesses are to be mindful of marketing communications. They also need to ensure that they have full tax compliance, including proper documentation of transactions. Also, businesses with branches across the country need to process only one vat registration. It will apply to all the branches. Branches of a company don’t need separate VAT registration. 

If you have questions regarding Value Added Tax, You can always reach out us here.

What is VAT in UAE?

VAT in UAE is levied at each stage of the addition of value. Vat registered businesses act as intermediaries between government authorities and customers. Businesses collect VAT from consumers and businesses can claim back the money spent on the taxable supplies.

Businesses need to ensure the proper documentation on revenues as well as expenses incurred along with VAT charges.VAT registered businesses charge VAT on making supplies and also pay VAT to suppliers.

Zero-Rated and VAT Exempt Products

Zero-rated products/services are
1) Supplies of certain education services and relevant goods and services.
2) Supplies of certain healthcare services and relevant goods and services.
3) Supplies of certain means of transportation such as aircraft and ships
4) Newly constructed properties that are for residential use.
5) Investment grade metals such as silver and gold with ninety-nine percent purity
6) International transportation and exports of items and services outside GCC.

Vat exempt products/services are
1) Residential properties
2) Local passenger transport
3) Bare land
4) Supply of certain financial services