In the UAE VAT, the supply of goods and services are defined and classified separately. Before discussing what is the supply of goods or services, let us understand “Why should people know about the supply of goods or services?”
Since the VAT rate applicable to both is 5%, this question becomes effective.
Although VAT applies 5% to the supply of goods and services, they are defined separately and are subject to separate provisions of the UAE VAT Law and administrative regulations. This is because the characteristics of commodity supply are different from the characteristics of services. The goods are tangible and will not cause any major problems in determining their transfer, delivery, consumption point, etc. The service is intangible, but the delivery method of the service is easy to change and may cause problems in determining the location and time. on.
Therefore, it is important for companies to know whether the supply is equal to the supply of goods or the supply of services, and treat the supply accordingly. In order to eliminate the difficulties encountered when distinguishing goods and services, the UAE Administrative Regulations has specified this in detail.
What is the supply of goods in the UAE VAT?
In the UAE VAT, goods are defined as tangible property that can be provided, including real estate, water and all forms of energy specified in the UAE VAT enforcement regulations. In other words, any tangible property that can be touched or felt is considered a commodity. Any item that meets the above conditions will be regarded as a commodity supply in the UAE VAT.
The following are the different forms of supply that are considered commodity supplies detailed in the UAE VAT regulations:
1. Transfer of ownership or right of use of goods from one person to another
The transfer of ownership or right to use goods equals the supply of goods. This includes the transfer of ownership of any form of sales in written form or oral agreement and the compulsory consideration of ownership in accordance with applicable laws.
Example: A furniture store sells furniture to Mr. Aleem. This will be considered as a commodity supply, because at the time of sale, the ownership of the furniture was transferred to Mr. Aleem.
In the case of the transfer of the right to use any asset, it is regarded as a commodity supply only when others can dispose of it as the owner. Otherwise, it will be regarded as the provision of services.
2. Any transfer of ownership of goods under the agreement
Any transfer of ownership of goods under an agreement between the two parties, which stipulates that the ownership of the goods will be transferred at a future date, or the agreement refers to the transfer of ownership of the goods or the intention to transfer the ownership of the goods in the future.
Example: Furniture House provided Mr. Abdul with furniture and agreed to pay in 6 installments. This is equivalent to the supply of goods, because the agreement mentioned that the ownership of the furniture will be transferred to Mr. Abdul upon completion of six payments.
Generally, all hire purchases will meet the conditions of this section.
3. The specific supplies listed below will be regarded as commodity supplies
Real estate supply, including sales and lease contracts
Provide various forms of energy, including electricity and natural gas, including biogas, coal gas, liquefied petroleum gas, natural gas, petroleum gas, coal gas, refinery gas, reformed natural gas and tempered liquefied petroleum gas, as well as any mixed gas, whether used For lighting, heating, cooling, air conditioning or other purposes
What is the UAE VAT service supply
In the UAE VAT, service is defined as “anything that can be provided except for goods”. In other words, any supply that does not constitute the supply of goods under the value-added tax shall be regarded as the supply of services, including the provision of services.
Supply of goods and services in the UAE VAT
Although it is a broad definition to treat things other than goods as the supply of services, the UAE Executive Regulations does not detail the specific forms of supply that should be considered as service supply.
The following shall be considered as providing services:
Grant, transfer, suspension or waiver of rights
Provide facilities or advantages
Do not participate in any activity, or allow it to happen, or agree to conduct any activity
Transfer of undivided shares
The transfer or license of intangible rights, for example, the rights of authors, inventors, artists, and trademark rights, as well as rights that national laws consider such rights
As mentioned earlier, the service definition in the UAE VAT is broader. Companies in the service sector need to be extra careful when determining whether a supply is a service or a commodity. This is because services are defined as including “non-material” attributes and “anything else” that can be provided except for goods. Therefore, it can cover all transactions that do not translate the definition of goods into services.