Giving Gifts or Free Samples are Taxable!

Admin
05 Mar 2024

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.

Bottom Line

It is important to be aware of the VAT implications on gifts and free samples, in order to file for the return correctly and avoid penalties in the future.

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% of 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.

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