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 the UAE, please read 'What is Deemed Supply?'
The following are the deemed supply exceptions.
5 Exceptions to UAE VAT Deemed Supply Rules
Exception 1: Input VAT Not Recovered (No Deemed Supply Applies)
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 a 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.
Example
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 purposes.
Ali Spares Ltd availed Input Tax deduction only on the 14 computers which are used for business purposes.
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.
Exception 2: When Goods or Services Are Already VAT-Exempt in UAE
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 exempt, 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.
Exception 3: Input VAT Already Adjusted Under 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 the case of such goods and services (which are in question of deemed supply) in accordance with the Capital Assets Scheme, then it will not be considered a deemed supply.
Exception 4: Samples & Gifts Under AED 500 (12-Month Threshold)
Goods supplied as samples or commercial gifts are not treated as deemed supplies if their combined value supplied to each recipient does not exceed AED 500 within the relevant 12-month period.
The following conditions apply:
- The goods must be supplied as samples or commercial gifts.
- The AED 500 limit applies to the total value supplied to each recipient, rather than to each individual gift.
- The relevant period is the 12 months preceding the end of the month in which the supply is made.
Keep records of the recipients, supply dates, goods supplied and their values to support the exception.
Exception 5: Deemed Supplies Within the Output VAT Threshold
The general output VAT threshold for deemed supplies is AED 2,000 per supplier within the relevant 12-month period. Only the amount exceeding this threshold is subject to tax.
A separate threshold of AED 250,000 applies where the supplier is a qualifying government entity or charity and the recipient is also a government entity or charity. Any amount exceeding that threshold is payable tax.
These thresholds apply to output VAT, rather than the value of the goods or services supplied. The relevant period is the 12 months preceding the end of the month in which the supply is made.
Examples of UAE VAT Deemed Supply Exceptions
| Business situation | Condition to check | Potential VAT treatment |
|---|---|---|
| A business owner takes a computer for personal use. No input VAT was recovered on that computer. | Confirm that no input VAT was recovered on the specific computer. | The non-recovery exception applies, so the transaction is not treated as a deemed supply. |
| A customer receives samples worth AED 200 and commercial gifts worth AED 250 during the relevant 12-month period. | Confirm the qualifying purpose and that the combined goods value supplied to that recipient is AED 450. | The supplies fall within the AED 500 exception. |
| Input VAT recovered on a qualifying capital asset has been adjusted under the Capital Assets Scheme. | Confirm that the adjustment relates to the relevant goods or services and meets the scheme’s requirements. | The Capital Assets Scheme exception applies. |
| A supplier’s calculated output VAT on relevant deemed supplies totals AED 2,600 during the applicable period. No other exception applies. | Check the supplier’s cumulative calculation and whether any excess has already been accounted for. | Under the general threshold, total payable tax is AED 600. |
How Businesses Can Check Whether a Deemed Supply Exception Applies
Businesses can use the following steps to assess a transaction:
- Identify the transaction. Record the goods or services involved, the recipient, the supply date, whether payment was received and the purpose of the transaction.
- Check whether deemed supply rules apply. Establish whether the transaction falls within a deemed supply category before considering the exceptions.
- Review input VAT recovery and adjustments. Check whether input VAT was recovered on the relevant goods or services and whether a qualifying Capital Assets Scheme adjustment was made.
- Check whether the supply is exempt. Confirm the VAT classification of the particular transaction.
- Test the applicable thresholds. Calculate qualifying goods values for each recipient and relevant output VAT totals for the supplier over the prescribed 12-month period.
- Keep supporting evidence. Retain purchase invoices, input VAT records, recipient details, valuation calculations and any adjustment records supporting the decision.
An exception applies only when the transaction meets its specific legal conditions. Refer to the latest FTA legislation and guidance, or consult a qualified UAE VAT professional where the classification, calculation or eligibility is unclear.
Conclusion
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'.
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