In the business scenario, price is not the only supply consideration, that is, when fully or partially considered in a non-monetary form, the supply value should be based on the criteria provided in the UAE Value-Added Tax Law. In this article, we will discuss the valuation of the supply of goods or services for which the consideration is not all denominated in currency.
To understand how to determine the value of supply when the consideration is entirely currency, please read “How to Determine the Value of Supply”.
Let us understand more about supply rather than money considerations.
Let’s go back to the early days of civilization, where trade was conducted in exchange for goods called the “barter trade system.” Under this system, people exchange goods or services in exchange for other goods or services without any financial considerations. Nowadays, the hundred-year-old barter trading system is making a comeback with an improvisation technique called “trading offer.” According to the plan, goods are sold in exchange for part of the consideration, in exchange for money and second-hand goods. For example, with the replacement of old TVs, one TV sells for 25,000 dirhams.
If you assume that the value of the supply in the above example is 25,000 dirhams, then you will be in trouble and may lead to litigation. This is because AED 25,000 is part of the price received as consideration for the TV supply, not the only price required to reach the supply amount. Therefore, for this type of supply, the value of the supply should be derived by applying the following metrics:
Monetary value + market value of non-monetary part = supply value
It is clear from the above formula that to determine the supply value, you need to find the market value of the non-monetary part. But how do you get the market value? Similarly, the UAE VAT law provides the following guidelines for determining market value:
1. The market value of the supply of goods or services on a given date refers to the currency consideration that will be realized for the goods (non-monetary products or services) provided in the country on the same date between people and has no relationship in general People.
For example, let us consider a television example. The price of the TV is 25,000 dirhams, and an old TV needs to be replaced. If provided, the value of the old TV will be 5,000 AED.
In this case, the taxable value will be the sum of the consideration received in currency plus the monetary value of the product or service received as consideration. Therefore, the taxable value of television supply is:
Currency consideration 25,000 dirhams + currency value of old TV 5,000 dirhams = 30,000 dirhams
2. For some reason, if the market value of the supply of goods or services on a given date cannot be determined as described in point 1, the market value is the currency consideration. If supplied in a similar way, similar supplies will be realized on that date The situation in that country refers to the supply between people who have nothing to do with anyone. Here, similar supply related to the supply of goods or services refers to the supply of any other goods or services that are very or substantially similar to the supply of goods in terms of characteristics, quality, quantity, functional components, materials and reputation.
For example, the price of a TV set is 25,000 dirhams, and an old TV needs to be replaced. Let us assume that there is no market value for old TVs. In this case, to determine the value of the old TV, you need to compare it with similar products.
Similar products from Innovative Solutions are priced at Dh10,000. Therefore, the supply value will be considered Dh10,000.
Currency consideration of 25,000 dirhams + the currency value of the old TV 10,000 dirhams = 35,000 dirhams
If for any reason the market value cannot be determined by applying the above indicators, the market value should be determined by referring to the replacement cost of the same goods or services provided by the supplier who has not contacted the supplier. The recipient of goods or the recipient of services in any way.