“VAT-free special offers” are promotions that numerous businesses are offering to encourage potential buyers to purchase goods or services within a promotional period.

The purpose of this clarification is to clarify that goods and services are not actually supplied free of VAT on the contrary and misleading term “VAT-free”.

Liability to Impose VAT

Should impose 5% VAT on the supply of all goods and services in the UAE, except zero-rated or exemption:

  • “taxable person” – as any person registered or obligated to register for tax purposes.
  • taxable supply”- as a supply of goods or services for consideration by a person conducting business in the UAE and does not include an exempt supply.

Based on the above, any promotional campaign stating that the supply of promotional goods is “VAT-free” is misleading as the seller is obliged to impose VAT on these supplies.

The seller may, however, make a commercial decision to offer a discount equivalent to the amount of VAT. As a consequence, VAT is always payable on taxable supplies and the seller is not entitled to choose whether or not VAT should be imposed on a supply.

Discount (VAT-on-us)

Sellers may take a commercial decision to absorb VAT in order to make the price of promotional goods more attractive to potential buyers.

VAT will be charged on the discounted price of the product or services.

Sales Value: 500

 Before Discount  After Discount
 Sales Price      500.00  Sales Price   500.00
 5% VAT        25.00  Discount  –   50.00
     Discounted Price   450.00
     5% VAT     22.50
 Total Price      525.00  Total Price   472.50

VAT inclusive prices

Any price displayed for a taxable supply should be VAT inclusive though businesses advertise prices as “VAT-free as part of the promotional labeling except for exported goods or services.

Tax Invoice

All tax invoices issued in respect of taxable promotional goods or services shall meet all the requirements.

Consequently, the seller is required to reflect the rate of tax, tax amount, and the gross amount payable in AED for each taxable good or service supplied on the tax invoice.

Source: Federal Tax Authority