Deemed supply for VAT
Following are considered deemed supply.
1. Giving away company's assets for no consideration
In most cases, a company will purchase a product which is for business for an amount inclusive of VAT. Subsequently, the company will recover the VAT amount paid on the product. The company will then decide that the product will not be sold, and will be used or incurred by others for free.
2. Transferring business assets from UAE to a GCC implementing state
In many daily cases, companies in the UAE may transfer its assets to another implementing state e.g. KSA. When the company in the UAE have purchased this asset, whether a local purchase, or an import, it was subjected to pay 5% VAT on the purchase price of the asset, and then recover the VAT paid through the normal tax return submission by the end of the corresponding period. If the same company in the UAE have permanently transferred the assets to another GCC implementing state after recovering the VAT, then the assets shall be considered as deemed supply, and thus, the company is liable to pay the 5% VAT it has recovered back to the FTA.
However, such goods may not be considered as deemed supply only in the following circumstances:
• If the transfer of the goods is only temporary in accordance with customs legislation; or
• If the transfer is made as a supply of goods.
3. Usage of goods related to business purposes for personal use
Input tax recovery is permitted for all registered businesses, only if the goods purchased are pertaining to business purposes. In many cases, companies purchase goods that are actually purchased for business purposes, but later after the purchase, the usage of the goods is changed from business purposes to personal use, that is when those goods will be considered as deemed supply.
4. Goods owned at the time of tax de-registration
When a company applies for a de-registration, the goods owned and available for sale shall be considered as deemed supply and thus, pay back the VAT amount recovered from the FTA, provided that the company initially recovered the corresponding VAT it has paid when they purchased or made the goods.
Exemption to deemed supplies
According to the VAT Law in the UAE, the supply will not be considered as deemed supply in the following instances:
- If the supplier has not recovered the Input tax paid for the relevant goods or services, which are supplied at free of cost.
- Where the supply is an exempted supply as per the UAE VAT Law.
- Where the refunded Input Tax on Goods and Services is amended according to the Capital Assets Scheme.
- Where the value of the Goods for each recipient, within a 12-month period, does not exceed AED 500 and the supply is used as samples or commercial gifts.
- Where the total of Output Tax payable on the Deemed Supplies made in a 12-month period is less than AED 2,000.