VAT Treatment on Gifts and Free Samples in Oman

Yarab A | Updated on: May 30, 2022

• VAT on gifts and free samples
• Conditions for supply of gifts and samples
• Treatment of input tax deduction on gifts and free samples
• How TallyPrime helps in managing Oman VAT?

Sales promotional offers are a common sight, especially when festival season is around the corner. More often, promotional schemes are used as an effective sales strategy to attract customers to buy products.

Among the various promotional offers, free samples and gifts are quite popular schemes. The concept of free samples helps to gain market penetration, especially if the product is new. Gifts are supplied to attract the customers and up the sales. These are age-old strategy and has proven to work pretty well. With VAT in Oman, will it have any implication on these? Are gifts and free samples taxable? Are there any guidelines for the supply of products as gifts or free samples?

To answer, the supply of free samples and gifts will have VAT implications, and there are specific guidelines prescribed in VAT regulation.

VAT on gifts and free samples

As the name suggests, gifts and free samples is a supply type made without any consideration. VAT in Oman regards all the supplies made without consideration as a taxable supply, meaning VAT needs to be paid even if no consideration is expected from the supply. However, the VAT law grants a specific exception for supplies without consideration if these are made to promote the business activity. This includes supplies provided as gifts and free samples.

In short, free samples and gifts issued for the betterment of business are not taxable, and no VAT will be levied. However, this is subject to the fulfilment of conditions specified in the VAT regulations.

Let us understand VAT on gifts and free samples with an example:

Electronic World is an exclusive showroom of electronic products. Given the festival season, Electronic World announced an offer of free Bluetooth headphone wroth 45 OMR on purchase of 49 Inch Led TV.

The following are the details of supplies:

Here, the supply of Bluetooth headphones will not attract VAT since it is to promote business activity.

Conditions for supply of gifts and samples

While it is true that free samples and gifts issued for the betterment of business are not taxable, it is subject to the fulfilment of conditions. Also, there is a threshold limit up to which a business can issue gifts and free samples without levying VAT.

Below are the condition and threshold limits for supply of gifts and free samples:

• The gifts or the free samples should be provided to promote the sale of a particular product without being finally consumed unless any final consumption is essential for promoting such products
  
  
• The value of the gifts or the free samples given by the registered business should not exceed 50 OMR (excluding tax) per customer for a year
  
  
• The total value of all gifts or free samples given by a Taxable Person by the registered business should not exceed 1000 OMR (excluding tax) to all the customers in a year

For example, if you have supplied goods as samples to your customer whose value during the 12 months is OMR 450 (to that customer). It will be taxable, and VAT needs to be paid. The reason is that it exceeds the threshold limit of 50 OMR per customer in a year.

Let’s take another example. If you have supplied goods as samples whose overall value during the 12 months is 800 OMR to all your customers, it will not be considered taxable. Here, the value of overall free supplies is well within the threshold limit of 1000 OMR for all the customers in a year.

Treatment of input tax deduction on gifts and free samples

Though the VAT law exempts levy of output VAT on supply of gifts and free samples, businesses can claim full input VAT deduction on purchases. Considering the example of Bluetooth supplied as free on purchase of LED TV, Electronic World can deduct input VAT paid on the purchase of Bluetooth headphones.

How TallyPrime helps in managing Oman VAT?

TallyPrime is a complete business management software that fully supports Oman requirements. Using TallyPrime, you can record different types of supplies, generate VAT compliant tax invoices, generate accurate VAT returns and, many more capabilities to manage VAT with ease.

Read More on Oman VAT:

• Time of Supply in Oman VAT
• Reverse Charge Mechanism in Oman VAT
• Composite and Multiple Supplies in Oman VAT