The Federal Tax Authority of the UAE (FTA) published a new VAT Public Clarification (VATP020) which clarifies the “VAT-free” special offers where the seller absorbs VAT.
The FTA described the “VAT-free” offer as misleading and contrary to the VAT legislation, since the promoted product is not actually supplied free of VAT.
Businesses and individuals registered for VAT in the UAE are not allowed to advertise or promote their goods and services as free of VAT.
According to the VAT laws in the UAE the VAT must be imposed on every taxable good or service sold by a VAT registered business at a rate of 5% except for zero-rated or exempt supplies.
Therefore, any “VAT-free” promotion declaring that a product is VAT-free is considered misleading as it is obligatory to charge VAT.
How can sellers promote the absorption of VAT?
Charging VAT is not a choice for the seller, VAT must always be imposed on taxable supplies.
However, businesses can find other ways to promote the absorption of the VAT based on commercial arrangements such as special discounts or “VAT-on-US” campaigns.
Sellers can offer a discount equivalent to the amount of VAT, for example if a mobile phone’s normal price is AED1,050 and a special VAT-on-us promotional price is AED1,000, the seller is regarded as providing a discount of AED 50.
The advertised or published price must include the VAT, unless the promoted item is for export only or supplied to a VAT registered buyer.
For example, a published price for a “VAT-on-us” promotional campaign for a vehicle of AED 100,000 shall be the total consideration inclusive of the VAT (95,238.00 +4,761.90 VAT). The seller is required to account for a VAT of AED 4,761.90.
Tax invoices for promotional goods & services
A valid tax invoice must always be issued for promotional goods or services and shall meet all the requirements. Thus, it is mandatory for the seller to show the total amount payable, the VAT rate, and the amount of VAT.