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Deemed supplies are not actually supplies which a business makes. Only for the purpose of VAT, these are considered on par with the taxable supply and accordingly VAT is charged at 5%. To know more on the instance considered as deemed supply in VAT, please read 'What is Deemed Supply'.
If you closely look at the instances of deemed supply in VAT, either it is made without consideration or consumed for non-business purpose or transferred. Since these are taxable and different from your regular taxable supply, it is very important for businesses to understand the following:
The value of goods or services which are purchased to make Taxable Supplies but are actually used for making deemed supplies, will be equal to the total cost incurred by the taxable person to make this a deemed supply of goods or Services. In other words, the actual inward cost of deemed supplies will be considered as a value on which VAT should be paid.
For example, Ali Spares Ltd purchased 15 computers for 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.
The value of 1 computer which was used for the non-business purpose will be the actual cost incurred i.e. 2,000 AED. Accordingly, Ali Spares Ltd will be liable to pay VAT of AED 100 (2,000 * 5 / 100).
Time of supply refers to the time when output VAT on deemed supplies is required to be paid. The date of deemed supply of goods or services is the actual date of their supply, disposal, change of usage or the date of Deregistration.
On 1st February 2018 Ali Spares Ltd purchased 15 computers for 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, 1 was put into personal usage on 15th March, 2018.
Here, the time of deemed supply will be 15th March and accordingly, Ali Spares Ltd is liable to pay VAT while filing March month’s VAT return.
Although VAT deemed supplies are not actual supplies made by the taxable person, still it requires you to issue a tax invoice or to keep sufficient records in books for making deemed supplies. The registered business making a VAT deemed supply should issue an original Tax Invoice and deliver it to a recipient of goods or services, if available. This will be applicable to deemed supplies like business assets supplied without consideration, free samples, gifts etc.
If the actual recipient of goods or services is not available, you need to keep the records for making deemed supplies. Generally, the records of books to account for the deemed supplies and VAT liability on such supplies will be sufficient here. This will be applicable to the deemed supply of business assets used for the non-business purpose.