Did you know that giving gifts or free samples in the UAE can be taxable. Which means you may have to pay a 5% VAT on the gift’s value. Many businesses are unaware of this.
If it is normal for your business to be giving free samples or gifts, you need to be aware of the VAT implications.
In general gifts and free samples are considered as deemed supplies, and therefore VAT is chargeable. Except for in the following cases:
– The relevant input tax was not recovered on the related goods;
– The value of supply to each recipient does not exceed AED 500 in a 12-month period; or
– The output tax due for all deemed supplies per person made in the 12-month period is less than AED 2,000.
Example – VAT on Gifts or Free Samples
ABC LLC is a distributor of cosmetic products. ABC LLC claims input VAT on all its purchases. In order to promote the sales of some of their products, they decided to give one of their customers free samples worth AED 100,000.
In such a case AED 5,000 (which is 5% if the value) of VAT is to be treated as output VAT and to be paid to the FTA.
Solution
This may become a problem for businesses as they may need to bear the 5% cost, which they did not anticipate. A simple solution would be to change the contract with the customer, to give them a discount for the value of the anticipated free samples. This solution may not work in all cases. If it is not possible to structure the contract (or supply) in a way to give a discount to the customer, 5% on the value of the samples or gifts will be payable.
Need Help?

All you need to know about Tax Groups | 9% UAE CT| Public Consultation Document
Here we will discuss the concept of tax groups in the UAE CT (corporate tax) regime as explained in the consultation document, released by the

What are some of the Non-Deductible Expenses & Loss offsetting rules | 9% UAE CT| Public Consultation Document
Here we will discuss the aspects of the CT (corporate tax) consultation document, released by the MOF that discusses, non-deductible expenses, offsetting losses, and the

Exempt Income | 9% UAE corporation tax | UAE Public Consultation Document
We have discussed the basis of the taxable income calculation earlier, now we can get into what income can be exempt from this calculation on

Calculation of Taxable Income | 9% UAE corporation tax | UAE Public Consultation Document
From the consultation document released by the MOF, we have been given a basic understanding of the calculation of the taxable income. We need to

Residents & Non-Residents Corporate Tax | UAE Public Consultation Document
The corporate tax public consultation document provides details on the basis of the taxation. 9% corporation taxation is something we expect to come into effect

Free zone Corporate Tax | UAE Public Consultation Document
Corporate tax impact on Freezone companies will need a lot of discussions. There are many Free zone entities in the UAE as stand-alone companies and