Deemed Supply Exceptions under VAT in UAE
Deemed Supply exceptions under VAT in UAE refer to those cases which prevent an instance to be considered as deemed supply. This implies that, though the instance is listed as a deemed supply, if it finds a place in the list of deemed supply exceptions, it will not be considered as deemed supply and VAT will not be levied.
To know the instances of deemed supply in UAE, please read 'What is Deemed Supply?'
The following are the deemed supply exceptions.
1. Input Tax on the relevant Goods or Services is not recovered
If the input VAT deduction is not claimed on goods or services, the instance of deemed supply will not arise and no VAT will need to be paid. This becomes more relevant in case of business assets supplied for no consideration and used for the non-business purpose. In such cases, if the input VAT was not recovered, it will not be considered as deemed supply, though it is supplied without consideration or used for the non-business purpose.
Ali Spares Ltd purchased 15 computers worth AED 30,000/- and paid VAT of AED 1,500/-. Out of These 15 computers, 14 were used for maintaining the records and accounts of the business and 1 was used for personal purpose.
Ali Spares Ltd availed Input Tax deduction only on the 14 computers which are used for business purpose.
Since on 1 computer which was used for the non-business purpose, input VAT was not recovered, it will not be considered as deemed supply and VAT will not be applicable.
2. Goods and Services are under exempt supply
If the goods and services which are in question under deemed supply, are actually part of VAT exemption, such supplies will not be considered as deemed supply. In other words, once a supply is exempted, it is always exempt and even by applying the instance of deemed supply, it cannot be rendered as a taxable supply. For example, supply of the residential building.
3. Input tax credit adjusted in accordance with the capital asset scheme
The extent of input VAT recovery on capital assets is determined in accordance with the capital asset scheme. If the recovered Input VAT has already been reversed, in case of such goods and services (which are in question of deemed supply) in accordance with Capital Assets Scheme, then it will not be considered as deemed supply.
4. Samples, gifts etc. made for no consideration
Deemed supply includes the instance of supplies made without consideration but there are threshold exceptions which are designed to exclude the transaction with the smaller value from being considered as a deemed supply. The threshold here is AED 500 and this exception comes with the following conditions:
- 1. The value of the supply of goods for each recipient does not exceed AED 500.
- 2. The threshold of AED 500 is calculated within a period of 12-month.
- 3. A supply made is to be used as samples or commercial gifts
For example, if you have supplied goods as samples to your customer whose value during the 12 months is AED 450 (to that customer), it will not be considered as deemed supply even though it is made without consideration.
5. Output VAT Threshold Exemption
Here, an exception is provided to all the deemed supplies based on the output VAT threshold. If the total of output tax payable on all Deemed Supplies for each person for a 12-month period is less than AED 2,000, it will not be considered as deemed supplies.
It is not only important for a business to know the activities which amount to deemed supply, also knowing the exceptions to the instance of deemed supply will help businesses to take benefits offered and avoid paying VAT on such exceptional instances of deemed supply.
To know how to determine the value, the date on which you are liable to pay VAT and other compliance requirements in case of Deemed supplies, please read 'Value, Time of Supply and other VAT requirements in case of Deemed Supplies'.