Deemed supply exceptions under UAE VAT refer to situations that prevent an instance from being deemed a deemed supply. This means that although the instance is listed as a deemed supply, if it finds a place in the deemed supply exception list, it will not be considered a deemed supply and no value added tax will be levied.
To understand the deemed supply in the UAE, please read “What is deemed supply?”.
The following are recognized supply exceptions.
1. The input tax on goods or services has not been recovered
If no input tax deduction is claimed for goods or services, there will be no deemed supply and no value-added tax will be paid. This becomes especially important when commercial assets are provided for free and used for non-commercial purposes. In this case, if the imported value-added tax is not recovered, even if it is provided or used for non-commercial purposes without consideration, it will not be regarded as a supply.
Ali Spares Ltd purchased 15 computers, valued at Dh30,000/-, and paid Dh1,500 in value added tax. Of these 15 computers, 14 are used to maintain corporate records and accounts, and 1 of them is used for personal purposes.
Ali Spares Ltd only used input tax credits on 14 computers used for commercial purposes.
Since the VAT entered is not recovered on a computer used for non-commercial purposes, it will not be considered as a supply, so VAT will not apply.
2. Goods and services are tax-free
If the goods and services involved are actually exempt, such goods will not be considered as supply. In other words, once a supply is exempted, it is always exempted, even if it is regarded as an instance of supply through the application, it cannot be regarded as a taxable supply. For example, the supply of residential buildings.
3. Input tax credit adjusted according to the capital asset plan
The input value-added tax deduction for capital assets is determined according to the capital assets plan. If the input VAT that has been recovered has been written off, such goods and services (in the case of a deemed supply) under the capital asset plan will not be deemed to be a supply.
4. Samples, gifts, etc. are not considered
Deemed supply includes instances of supply made without any consideration, but there are threshold exceptions, which are intended to exclude less valuable transactions from consideration. The threshold here is 500 dirhams. In this case, there are the following situations:
1. The value of the goods provided to each recipient does not exceed Dh500.
2. The threshold of AED 500 is calculated within 12 months.
3. The supplied items will be used as samples or commercial gifts
For example, if the price of a product sample you provide to a customer is Dh450 (to that customer) within 12 months, it will be considered as a supply even if it is not considered.
5. Export VAT exemption
Here, exceptions are provided to all identified sources of supply based on the exported value-added tax threshold. If the total output tax paid by each person for all deemed supplies within 12 months is less than AED 2,000, they will not be considered as supplies.
It is important not only to let the company understand the activities that constitute a recognized supply, but also to know that the exceptions to the recognized supply instance will help the company to obtain the benefits provided and avoid paying VAT under this special recognized supply situation.
To learn how to determine the value, the date you are responsible for paying VAT and other compliance requirements if you think it is a consumable, please read “Value when the value is considered a consumable, delivery time and other Value-added tax requirements”.