The United Arab Emirates (UAE) implemented a Value Added Tax (VAT) law in 2018, which included the concept of ‘Deemed Supply’ (DS). This concept is crucial to understanding the scope of tax in the UAE. According to the law, DS refers to the supply of goods or services made without consideration. In other words, if a business provides goods or services for free, it could still be subject to VAT.
However, the law also states that supplies made without consideration would not be deemed supplies if certain conditions are met. Firstly, if no input VAT (IV) is recovered for the related goods or services procured, the supply would not be considered a deemed supply. Secondly, if output VAT (OV) at the cost value of such DS is paid, the supply would also not be considered a deemed supply. These conditions are important for businesses to understand in order to avoid unexpected VAT liabilities.
It is worth noting that the concept of deemed supply is not unique to the UAE. Many other countries with VAT systems also have similar provisions. However, the specifics of how deemed supply is defined and applied can vary between countries. Therefore, businesses operating in multiple jurisdictions should be aware of the relevant rules in each location.
In the UAE, the Federal Tax Authority (FTA) is responsible for administering the VAT law. The FTA has issued guidance on deemed supply, which provides further clarification on how the concept should be applied. For example, the guidance explains that if a business provides free samples of its products, this would not be considered a deemed supply as long as the samples are not resold or used for personal purposes.
Another scenario where deemed supply could arise is if a business provides goods or services to its employees for free or at a reduced cost. In this case, the value of the goods or services provided would need to be included in the business’s VAT return as a deemed supply. However, if the goods or services are provided for a non-business purpose (e.g. as a gift), they would not be considered a deemed supply.
It is also worth noting that the concept of deemed supply can apply in reverse. In other words, if a business receives goods or services for free, this could also be considered a deemed supply. For example, if a supplier provides a business with free goods as part of a promotion, the value of those goods would need to be included in the business’s VAT return as a deemed supply.
Overall, deemed supply is an important concept for businesses to understand in the context of UAE VAT law. While it can be a complex area, the FTA’s guidance provides useful clarification on how the concept should be applied in practice. By ensuring compliance with the relevant rules, businesses can avoid unexpected VAT liabilities and ensure they are meeting their obligations under the law.
In conclusion, while the concept of deemed supply may seem straightforward, it can be a complex area with many nuances. Businesses operating in the UAE should take the time to understand the relevant rules and seek professional advice if necessary. By doing so, they can ensure they are meeting their obligations under the law and avoid any unexpected VAT liabilities.
