UAE: Clarifications of VAT rules

UAE: Clarifications of VAT rules

The federal tax authority issued guidance to clarify certain value added tax (VAT) measures.


VAT-free special offers

One item concerns “VAT-free special offers” to remind taxpayers of their obligations under the UAE VAT law for goods or services sold under certain promotional schemes. In recognition that retailers may advertise promotions when the price for goods or services is discounted by the amount of VAT that would ordinarily be charged (offers that are “VAT free” or “the VAT is on us”), these UAE VAT registered retailers are reminded that all supplies of goods and services are subject to the standard rate of VAT at 5%, unless they qualify for the zero-rate or are exempt from VAT.  VAT is to be accounted for as appropriate on payments received from customers in respect of the promotional goods and services and tax invoices issued in respect of these sales. Retailers are reminded to review their promotional materials to determine that they do not use misleading language that appears to contravene the UAE VAT rules. 

VAT registration of sole establishments

The second guidance clarifies the “VAT registration of sole establishments” and the VAT registration obligations of individuals (natural persons) operating a number of sole establishments. For these purposes, sole establishments are businesses owned and operated by individuals, and are not legally distinct from their owners. When an individual owns a number of sole establishments, the sole establishments are not required to be registered separately for VAT.  The tax authority clarified that a single VAT registration in the name of the owner is to be obtained.

Turnover from all the owner’s sole establishments would be considered when determining whether VAT registration thresholds have been breached.  When an individual is registered for VAT, all activities conducted by a business by that person will be subject to VAT as appropriate.

The tax authority advised that it will review the positions when owners of sole establishments obtained multiple VAT registrations in the past, and directly contact the taxpayers if any corrective action is required.

Read an October 2020 report prepared by the KPMG member firm in the United Arab Emirates

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