Providing multiple goods or services or a combination of both in the same transaction is a common business scenario. Although there are many reasons for bundling these goods or services into the same transaction, from the perspective of the supplier, it is more important to understand the impact of VAT on such goods. This is because according to the nature of the goods or services provided in a single transaction, the UAE VAT law divides them into two categories:
1. A variety of consumables
2. Single composite power supply
Depending on the nature of the supply, the transaction can be divided into multiple supplies or a single composite supply. Both types of consumables have different VAT processing methods. In this article, we will discuss various consumables.
Multiple supply refers to more than one component that provides goods or services at a single price, but is not bundled together due to natural needs. In other words, these goods or services always need to be provided together and can be provided separately in the normal business process, which is not necessary or necessary.
Among multiple supplies, different supplies produced as part of the same transaction may be subject to different VAT rates. In this case, if separate consideration is paid for multiple supplies and different VAT rates are required, the supplier must determine the value of each supply and collect VAT. This means that goods and services provided as part of the same transaction need to be separately identified to determine the tax applicability of this supply-whether it is taxable or exempt, and therefore subject to VAT.
Let us understand this through an example.
Mr. James, a tourist from Australia, booked a hotel room in Dubai online for AED 2,000. When booking a hotel room, Mr. James also chose the hotel to charge 250 dirhams for additional services from the airport. For the services provided, the hotel charges AED 2,250 per unit.
For hotels subject to VAT, they need to determine whether it is a multiple supply or a single composite supply? To do this, first, they need to determine the different types of supplies available in the same transaction and determine whether it is vital that they always need to be supplied together.
Considering the above example, hotel accommodation and transportation services basically do not need to be provided together, and they are obviously independent of each other. Therefore, hotel accommodation and transportation services are two different items used for value-added tax purposes and are considered multiple items.
Therefore, the hotel charges a 5% value-added tax on hotel accommodations and treats airport pickup services as local tax-free transportation services. Therefore, VAT is only levied on hotel accommodation services, which is 5% of AED 2,000.
The key point for a supplier to provide multiple supplies in one transaction is to determine the value of each supply and charge VAT accordingly (if applicable). To understand what a single composite power supply is and the VAT treatment of a single composite power supply, please read “Single Composite Power Supply in UAE VAT”.