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15 October 2020
UAE issues clarifications for ‘VAT free’ special offers and VAT registration of Sole Establishments
The FTA has recently issued two public clarifications under UAE VAT law that discusses the VAT treatment on –
  1. ‘VAT-free’ special offers
  2. VAT registration of Sole Establishments
We have summarized below the gist of the key UAE VAT positions discussed in the clarification:

A. ‘VAT-free’ special offers
  • The reason behind issuing this clarification is that numerous retailers are offering ‘VAT-free special offers’ to attract prospective buyers to buy goods or services within the promotional period;
  • As per FTA, referring such offers as ‘VAT-free special offers’ is misleading and contrary to the VAT legislation, since the goods and services are not actually supplied free of VAT;
  • The seller may take the commercial decision to absorb VAT in the price of promotional goods to make the price more attractive to potential buyers. These promotions are commonly referred to as ‘VAT-on us’ promotions. Hence, the discount is equal to the VAT amount imposed on promotional goods or services;
  • The FTA, through public clarification VATP020, has summarized and emphasized that VAT registered businesses should not advertise and sell such taxable goods and services as free of VAT without accounting for 5% VAT, except where the supply qualifies for zero-rating. The other provision of law also has to be taken care of, in cases where such discounts are issued. The same has been explained by way of an example in the table below:
    Normal Cost  Discount Advertised cost VAT to be accounted by seller 
    AED 105,000 AED 5000 AED 100,000 AED 4,761.90 (100,000/0.05)

B. VAT registration of Sole Establishments
  • Sole establishments are businesses owned and operated by natural persons and are not legally distinct from their owners.  Where a natural person owns a number of sole establishments, the sole establishments are not required to be registered separately for VAT.  The FTA through public clarification VATP021 has clarified that a single VAT registration in the name of the owner should be obtained.
  • Turnover from all the owner’s sole establishments should be considered when determining whether VAT registration thresholds have been breached. Where a natural person is registered for VAT, all activities carried out by way of business by that person will be subject to VAT as appropriate.
  • The FTA advised that it will review the positions where owners of sole establishments obtained multiple VAT registrations in the past, and directly contact the taxpayers if any corrective action is required.
Our Comments
  1. VAT registered businesses should not advertise taxable goods or services as ‘free of VAT’ or sell such goods or services without accounting for the 5% VAT, except where the supply qualifies for zero-rating;
  2. The FTA’s clarification VATP021 has resolved long-standing ambiguity as many sole establishments, and natural persons are not registered for VAT purposes.
Check the public clarification for 'VAT free' special offers and Sole Establishment here.
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