Supply of Goods and Services in UAE VAT
In UAE VAT, the Supply of Goods and services are defined and classified separately. Before we discuss what supply of Goods or Services is, let us understand 'Why one should know whether a Supply is for goods or services?'
This question becomes valid since the rate of VAT applicable on both is 5%.
Though the VAT is applicable at 5% on the supply of both goods and services, each of them are defined separately and governed by separate provisions of UAE VAT Law and Executive Regulation. This is because, the characteristics of supply of goods are different from services. Goods being tangible, do not pose any significant problems for determination of their removal, delivery, consumption point etc. While services being intangible, the manner of delivery of service could be easily altered and can pose problems in the determination of place, time and so on.
It is, therefore, important for businesses to know whether supply amounts to the supply of goods or supply of services, and treat supplies accordingly. In order to eliminate the dilemma involved in differentiating goods and services, the UAE Executive Regulation has in detail provided clarity for determining it.
What is Supply of Goods in UAE VAT?
In UAE VAT, Goods are defined as a physical property that can be supplied including real estate, water, and all forms of energy as specified in UAE VAT executive regulation. In other words, any tangible property that can be touched or felt are considered as Goods. Anything which meets the above, will be considered as a supply of goods in UAE VAT.
The following are the different forms of supply which are considered to be a supply of goods as detailed in the UAE VAT regulations:
1. A transfer of ownership of Goods or the right to use them from one Person to another Person
The transfer of ownership of goods or the rights to use them amounts to the supply of Goods. This includes transfer of ownership of goods under a written or verbal agreement for any kind of sale and ownership for a consideration in a compulsory manner in accordance with the provisions of applicable legislation.
Example: Furniture House sold furniture to Mr. Aleem. This will be treated as a supply of goods, because on sale, the ownership of the furniture is transferred to Mr. Aleem.
In case of transfer of rights to use any assets, it will be considered as a supply of goods only when the other person is able to dispose of them as an owner. Otherwise, it will be considered as a supply of services .
2. Any transfer of title of goods under an agreement
Any transfer of ownership of goods under an agreement between two parties which stipulates that the ownership of goods will pass at a future date or the agreement mentions the intention to transfer the possession of Goods or a future transfer of ownership of Goods.
Example: Furniture House supplied furniture to Mr Abdul in an agreement to receive payments in 6 instalments. This amounts to supply of goods, because the agreement mentions the transfer of ownership of the furniture to Mr Abdul on completing the payment of 6 instalments.
Typically, all hire purchases will qualify under this section.
3. Specific Supplies listed below will be considered as Supply of Goods
- Supply of water
- Supply of real estate including sale and tenancy contracts
- A supply of all forms of energy, which includes electricity and gas including biogas, coal gas, liquefied petroleum gas, natural gas, oil gas, producer gas , refinery gas, reformed natural gas, and tempered liquefied petroleum gas, and any mixture of gases, whether used for lighting, or heating, or cooling, or air conditioning or any other purposes
What is Supply of Services in UAE VAT
In UAE VAT, services are defined as 'anything that can be supplied other than goods' . In other words, any Supply that does not constitute a Supply of Goods under VAT shall be considered a Supply of Services including the provision of services.
While it is a broader definition to consider anything other than goods as a supply of services, the UAE Executive Regulation has detailed few specific forms of supply which should be treated as a supply of services.
The following should be treated as a supply of services:
- The granting, assignment, cessation, or surrender of a right
- Making available a facility or advantage
- Not to participate in any activity, or not to allow its occurrence, or agree to perform any activity
- The transfer of an indivisible share in a good
- The transfer or licensing of intangible rights, for example, rights of authors, inventors, artists, and rights in trademarks, and rights which the laws of the State deems to be such
Having said earlier, services in UAE VAT are defined in a broader way. The businesses who are in the Services sector need to take extra care in determining whether a supply is a service or goods. This is because, services are defined to include 'non-physical' property along with 'anything' else that can be supplied other than goods. Thus, it is capable of encompassing all transactions that escape the definition of goods into services.