What is a Deemed Supply?
In a normal business scenario, the supplier provides goods to the customer, and the customer pays consideration in return. The supplier buys the goods recovers input tax on the purchase, and later accounts for the output VAT, which is ultimately borne by the customer.
But what if there is no consideration?
Let’s suppose we have a supplier who has recovered input tax on some goods, which are then given away to the customer for free. The customer now has the goods, but no one has paid VAT on them.
Goods or services that are bought for business purposes but are later used for private use, or used as gifts or samples, are known as deemed supplies.
What types of deemed supplies are there?
Gifts or samples
Output VAT will be charged on the cost of gifts which are given away. Gifts with a smaller monetary value ouf under 200 AED are VAT exempt. Samples, which are kept to give customers an idea of what the product looks like, are also exempted from VAT and considered deemed supplies.
Personal use of business resources
There can be many items which are sometimes used both for business and personal use. Let’s consider a few examples of deemed supply in this case.
(i) Use of printers
Suppose you own a digital print shop. You have a printer for making printouts for your business purposes, which you sometimes use for personal reasons as well. You have two options for how to handle the VAT on this deemed supply:
You can distribute the input VAT between your business and personal use, and later recover the part you have used for the business.
You can claim the total input VAT and then make an output VAT adjustment whenever you use the printer for private use.
(ii) Motor fuel usage
Let’s suppose you have a business where you rent out cars and bikes. Sometimes, you use a rental vehicle for your personal use. There are three ways you can handle the VAT on this deemed supply.
You can reclaim the total input VAT, and then calculate the output VAT using the fuel scale charges set by the government.
You can choose not to claim the input VAT for your private use at all, so that there won’t be any requirement to pay the output VAT.
You can keep a very detailed mileage record showing when the fuel was used for business or personal purposes. This allows you to recover the input VAT on the business usage, and there is no output VAT charge.
Goods held at the time of deregistration
Output VAT will be charged on the replacement cost of the goods, based on their age and condition.
Goods imported to the UAE & transferred to GCC
If an importer pays import VAT and receives the goods under the expectation that they will stay in the UAE, but later re-exports the goods to another GCC state, the transfer will be treated as a deemed supply subject to VAT. The importer will need to repay the import VAT and address the transfer as deemed.
A supply will not be deemed if it satisfies any of the following conditions:
- If no input tax is recovered for the goods and services.
- If the supply of goods or services falls under the exempt category.
- If the input tax recovered has already been adjusted for the supply under the Capital Assets Scheme.
- If the value of supply in the past 12 months does not exceed the amount mentioned in the executive regulation of the Decree Law.
- If the goods are supplied as samples or monetary gifts.
- If the total output tax for all deemed supplies during a 12-month period is less than the amount mentioned in the executive regulation of the Decree Law.