What is Deemed Supply under VAT in UAE?
In UAE VAT, on all forms of taxable supplies, VAT at 5% will be levied. In order to consider an activity as a supply, there are various components which should exist as defined in UAE VAT law. The term 'Supply' includes all forms of supply of goods or services supplied by a registered taxable person in the State of UAE for a consideration and in the course of conducting a business.
In most of the cases, all of the above components - exist and accordingly, you can levy VAT at 5%. However, in certain exceptional scenarios, an activity may take place which does not meet the conditions of a supply. For example, a taxable person may do something with the goods which does not involve making them available to another party, or goods or services may be provided to another person without any consideration.
If you take a look at the above example, supply may not fall within the definition of supply but in order to levy VAT on certain instances which do not give rise to taxable supply, the VAT law has listed down the activities which are also considered as supply. Such activities are known as 'Deemed Supply'.
Deemed Supply instances
The following are the deemed supply instances on which the taxable person is required to pay VAT at 5%.
1. Assets which were part of their business are supplied for no consideration:
Once the assets are treated as business assets, input tax would be availed unless it is disallowed (blocked credit). Later, if these business assets, for any reason, are supplied without consideration, it would be deemed to be a ‘Supply’ and VAT becomes due on such transactions.
Ali Spares Ltd purchased 15 computers worth AED 30,000/- and paid VAT of AED 1,500/-. Ali Spares Ltd availed Input Tax Credit of AED 1,500/-. These computers were used for maintaining the records and accounts of the business.
After years of usage, Ali Spares Ltd decided to give these computers away to the employees without any cost.
Though the computers were disposed of without any consideration, Ali Spares Ltd is liable to pay VAT.
2. Transfer of businesses assets from UAE to another GCC Implementing State or GCC Implementing State to the UAE.
Businesses located in UAE State (any GCC member country) may make stock transfers to/from another Implementing State. Any such transfer of businesses assets is considered to be deemed supply and accordingly liable for VAT.
Ali Spares Ltd purchased 15 computers worth AED 30,000/- and paid VAT of AED 1,500/-. Ali Spares Ltd availed Input Tax Credit of AED 1,500/-. 15 computers were used for maintaining the records and accounts of the business.
Later, 5 computers were permanently transferred to Saudi Arabia.
The permanent transfer of 5 computers will be considered as deemed supply and Ali Spares Ltd is liable to pay VAT.
However, if such transfers are made for any of the following reasons, it will not be treated as deemed supply:
- 1. The transfer is treated as a temporary transfer in accordance with the Customs legislation
- 2. The transfer is made as part of another taxable supply of these goods.
3. Goods used for the non-business purpose on which input VAT deduction is claimed.
Input VAT recovery is allowed to businesses only when the goods are used for making taxable supplies. If the supplies are used for any non-business purpose or exempt supplies, Input VAT recovery is restricted. In case, the Input VAT deduction is claimed and later, if those goods are used for the non-business purpose, it is considered as deemed supply and VAT becomes due to the extent of non-business usage.
Ali Spares Ltd purchased 15 computers worth AED 30,000/- and paid VAT of AED 1,500/-. Ali Spares Ltd availed Input Tax Credit 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.
Since 1 computer was used for the non-business purpose (on which input VAT was recovered) will be considered as deemed supply and Ali Spares Ltd is liable to pay VAT.
4. Goods and Services that a Taxable Person owns at the date of Tax Deregistration.
For some reason, if you de-register from VAT, the goods and services which you own on the date of de-registration will be considered as deemed supply.
Only the instances which are discussed above are considered as deemed supplies. However, there are various exceptions to the instance of deemed supply, meaning there are exceptions that prevent the instances to be considered as deemed supply. To know deemed supply exceptions, please read 'Deemed Supply Exceptions'. Any other instance which does not form part of the scope of supply and deemed supply will be considered to be out of the scope of UAE VAT.