Tax Implications on VAT Free Sale Promotions
We often notice that competitive market situations urge the retailers to come up with various sales promotion strategies such as “VAT free sales”, “VAT on us” etc. to attract more customers. It is the responsibility of the sellers to make sure that these business development activities are in line with the VAT rules and tax is charged at appropriate rates wherever applicable.
VAT free sale promotions permitted under UAE VAT law
Are “VAT free sale promotions” permitted under UAE VAT law? How do such promotions work? Here is your answer. Considering the ambiguity over the VAT impact on sales promotions, FTA has issued guidance, clearly highlighting the responsibility of the sellers to charge VAT on the sale of taxable goods. Once taxability of the goods is confirmed, sellers cannot decide whether or not VAT to be charged, rather it comes as an unavoidable obligation to the seller to apply VAT and issue a tax invoice accordingly. However, suppliers/sellers can offer a discount which is equivalent to the VAT amount to pass on a net cash impact with the reduced price to their customers.
Impact of VAT on sales promotions
Do you know the Impact of VAT on sales promotions such as “VAT on us”, “VAT by the seller” etc.? Any “VAT free” amount paid by the customer will be considered as a VAT inclusive price for the supply of goods/services and the implicit VAT amount is ultimately due to FTA as tax paid by the seller.
Requirement to charge VAT on sales
Is there a mandatory requirement to charge VAT on sales referred as “VAT on us”? Yes, even though the seller promotes and sells the goods/services as “VAT on us” of “VAT free”, there is a legal responsibility to charge VAT on taxable goods/ services. FTA’s guidance clarifies and urges the business owners to avoid such misleading practices that may create confusion on the VAT impact in any sales transaction. To ensure compliance with the tax laws and to avoid the penalties, it is always suggested to maintain clarity and transparency as required in all the business transactions.
VAT inclusive Price
Any sales consideration/price as presented by the seller for taxable goods offered as “VAT free” will be considered as including the VAT amount by default. For example, if a seller displays the net cash payable by any customer for a taxable good in his shop as AED 945, this implies that the displayed price already includes the VAT amount. The value of the supply, in this case, to be considered as AED 900 and VAT amount at a standard rate of 5% which is AED 45, adds to get the net cash payable. The seller in his VAT return shall include AED 900 as the value of the supply for the transaction to pay AED 45 as tax due to FTA.
Impact of sales promotion on the tax invoices
It is to be noted that, regardless of the type of discounted prices involved in the sales transaction, the tax invoices issued by the seller shall follow the format as prescribed by the tax regulation, specifically to abide by the provisions of article 59 of the VAT regulation. Tax invoice shall necessarily include the value of the supply and the VAT charged for the same. Even if the sellers are putting forward the impression of no VAT to the customers, the impact of that offer shall reflect only as a discount amount in the invoice showing the VAT amount separately as required by the regulation.
How CDA helps in determining tax treatments for your business?
Since UAE VAT regulation was introduced and getting adopted by the entities of the region in recent years, queries still arise on the tax treatments for transactions which are unique or complex in their own respective contexts. The proper interpretation of tax laws and correct application of tax treatments are extremely important to ensure compliance with the regulation and to avoid penalties from the authority. It is always recommended to consult with tax accountants to clarify the tax related questions which will help in making the right business decisions.
CDA has extensive experience of serving the clients in UAE across different sectors and has been providing value adding consulting services in various competencies including accounting and tax.
Hope you have a clear idea of the tax implications on VAT free sale promotions in UAE. If you still have any queries, feel free to reach out to us to enjoy our customized service packages.