With the introduction of VAT in the UAE, most of the businesses are not sure how to treat VAT on discounts in the UAE. The businesses in UAE is has been using the strategy of discounts for a long time to attract customers but when it comes to using VAT. Discount is given on the original price for increasing sales. The doubt lies whether the VAT will be on the original price of the product or services or the selling price after a discount of the same. The VAT is levied on the discounted price of the goods or services. For example, if a product costs 100 AED and there is a discount of 50% then the price stands at 50 AED after the discount. Then the VAT will be levied on 50 AED and not 100 AED.
According to the Executive regulation for VAT in UAE the following conditions:
- The customer should gain an advantage from the discount.
- And the discount should be supplier funded.
How do you calculate VAT during a promotional campaign and/or when a sale or discount is offered?
When there is a sale like ‘Buy one, Get one’ or ‘Buy two, Get one’ then the VAT is calculated on the product/products the customer pays the price for and not on the product given out for free. In the case of discounts, the discount is calculated first and then a VAT is levied.
The VAT charged on products and services in UAE is 5% and it is the same regardless of discount. Which means, with or without any discount, the price that the customer pays is eligible for VAT.
Let us understand this more elaborately.
Suppose you purchase a product of 500 AED then you have to pay 5% VAT on the price. Which means you have to pay 500 AED (the actual) and an additional 25 AED for VAT.
Now if there is a 10% discount on the product, then the discounted amount stands at 450 AED. On this discounted price, you have to pay 5% VAT which is 22.5 AED. So you will have to pay 472.5 AED after VAT calculation.
VAT Services in UAE
Any individual or business that is taxable needs to understand how to treat VAT on discount amount during the transaction entry, or by making an edit while making a transaction in case there are no payments or allocations applicable.
Any taxpayer can refer to the Federal tax authority for VAT registration in UAE. The registration for VAT is mandatory when it comes to taxable services or goods. A 5% VAT levied on every stage of the supply chain is paid ultimately by the end consumer and the businesses collect it on behalf of the Government.
If you are not yet registered with VAT and you are engaged in an economical exchange in UAE through your business, then it is high time you get your firm or business registered. You will need the following documents for the registration:
- Trade license of your business.
- Copies of your valid passport
- Emirates Identity proof
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