In the UAE VAT, a 5% VAT will be levied on all forms of taxable supplies. In order to treat an activity as a supply, there should be various components in accordance with the UAE VAT law. The term “supply” includes all forms of goods or services provided by registered taxpayers in the UAE state for the purpose of considering and conducting business.
To learn more about supplies and taxable supplies, please read “Supplies under UAE VAT” and UAE VAT rates.
In most cases, all of the above elements are present-therefore, you can charge VAT at a rate of 5%. However, under certain special circumstances, activities that do not meet the supply conditions may occur. For example, a taxable person can make a commodity that does not involve providing it to another party, or a commodity or service can be provided to another person without any consideration.
If you look at the example above, supply may not be within the definition of supply, but in order to collect value-added tax in certain situations where taxable supply is not generated, the VAT law lists some activities that are also considered supply. This type of activity is called “deemed supply”.
Treat as a supply instance
The following is an example of a recognized supply where a taxable person needs to pay VAT at 5%.
1. Free provision of assets as part of its business:
Once assets are considered corporate assets, they will receive input tax unless they are prohibited (freezing credit). In the future, if these commercial assets are provided free of charge for any reason, they will be regarded as “supply” and such transactions are subject to value-added tax.
Ali Spares Ltd purchased 15 computers, valued at Dh30,000/-, and paid Dh1,500 in value added tax. Ali Spares Ltd used an input tax credit of Dh1,500. These computers are used to maintain corporate records and accounts.
After years of use, Ali Spares Ltd decided to provide these computers to employees for free.
Although there is no consideration for the disposal of the computer, Ali Spares Ltd is responsible for paying VAT.
2. Transfer corporate assets from the UAE to another GCC implementing country or GCC implementing country to the UAE.
Companies located in the UAE State (any member of the Gulf Cooperation Council) can transfer inventory to another implementing country. Any such transfer of corporate assets is considered supply and therefore should be liable for value-added tax.
Ali Spares Ltd purchased 15 computers, valued at Dh30,000/-, and paid Dh1,500 in value added tax. Ali Spares Ltd used an input tax credit of Dh1,500. Use 15 computers to maintain corporate records and accounts.
Later, 5 computers were permanently transferred to Saudi Arabia.
The permanent transfer of 5 computers will be considered as supplies and Ali Spares Ltd is responsible for paying VAT.
However, if such a transfer is made for any of the following reasons, it will not be considered as a supply:
1. According to customs regulations, the transfer is considered a temporary transfer
2. The transfer is part of another taxable supply of these goods.
3. Goods used for non-commercial purposes should be deducted for input value-added tax.
Only when the goods are used in the manufacture of taxable supplies are they allowed to collect input value-added tax from the enterprise. If the consumables are used for any non-commercial purpose or tax-exempt consumables, the recovery of input VAT is restricted. In this case, the input value-added tax is required to be deducted, and then, if these goods are used for non-commercial purposes, they are regarded as supply. Due to the degree of non-commercial use, the value-added tax becomes a value-added tax.
Ali Spares Ltd purchased 15 computers, valued at Dh30,000/-, and paid Dh1,500 in value added tax. Ali Spares Ltd used an input tax credit of Dh1,500.
Of these 15 computers, 14 are used to maintain corporate records and accounts, and 1 of them is used for personal purposes.
Since 1 computer is used for non-commercial purposes (VAT has been recovered), it will be considered as a supply and Ali Spares Ltd. is responsible for paying VAT.
4. Goods and services owned by the taxpayer on the date of cancellation of registration.
For some reason, if you are cancelled from VAT, the goods and services you own on the date of cancellation will be considered supplies.
Only the situations discussed above are considered to be provided. However, there are multiple exceptions to the presumptive provisioned instance, which means that there are some exceptions that prevent the instance from being considered presumptive. To understand the perceived supply anomaly, please read “Deemed Supply Anomaly”. Any other circumstances that are not part of the scope of supply and are deemed to be supply will be deemed to be outside the scope of UAE VAT.