Is VAT charged on discounts and vouchers?

Article 28 – Discounts, Subsidies and Vouchers 1. The State shall not be treated as providing a subsidy to the supplier if the subsidy or part of it is a Consideration for a supply of Goods or Services to the State. 2. The value of supply may be reduced in the case of a discount if the following conditions are met: a. The customer has benefited from the reduction in price. b. The supplier funded the discount. 3. The value of a discount shall be the amount by which the Consideration is reduced. 4. The value of a discount shall not include the value of any Voucher used, and any such reduction will be ignored unless that Voucher was provided for no Consideration. 5. Where the Voucher was issued and sold by the Supplier for Consideration that is less than the value stated on the Voucher, the value of a discount shall be the difference between the value of the Voucher and the Consideration paid for that Voucher. 6. “Voucher” shall not include an instrument that gives the right to receive Goods or Services or the right to receive a discount on the price of the Goods or Services Cabinet Decision No. 52 of 2017 and its amendments – Unofficial translation 20 unless the monetary value for which the Voucher may be redeemed is identifiable at the time the Voucher is issued. Title Five – Profit Margin Scheme

9. Promotions and discounts 9.1. Free promotional gifts Motor vehicle traders often offer promotional gifts with the sale of cars free of charge. This means that the motor vehicle trader does not receive any consideration for the supply of free gifts. Where the motor vehicle trader recovers input tax on the purchase of the gift and in turn supplies such a gift free of charge, the free supply will be subject to the deemed supply 12provisions. However, if the motor vehicle trader does not recover input tax on the purchase of the gift, the deemed supply provisions will not 13apply. 9.2. Discounts In addition to offering free gifts, motor vehicle traders also operate promotional schemes whereby they offer discounts on the sales price of the cars. Where a motor vehicle trader funds the discount and the customers benefit from the reduction in price, VAT is applicable on the discounted value14 charged by the motor vehicle trader. It is important to note that the tax invoice issued by the motor vehicle trader must clearly state the discount offered to the customer in order to account for VAT on the discounted value. Further, a motor vehicle dealer may itself receive a volume discount / bulk discount from the original manufacturer on purchasing a specified number of units. Where a volume discount is provided by the original manufacturer (for example, a discount on purchasing 100 units of a car), the manufacturer should clearly state the discount on the invoice. In addition, a motor vehicle dealer may also receive a contingent discount or payment from the original manufacturer such as a discount on achieving a sales target or a payment upon selling a specified number of units of a particular car model. In the case of a contingent discount or payment, the parties should carefully evaluate whether the discount/payment in reality reduces the original value of the car or it is in fact consideration for a separate supply made by the motor vehicle dealer. Where the discount/payment actually reduces the original value of the car, the manufacturer should issue a credit note to reduce the value. Alternatively, if the discount/payment 12 Article 11(1) of the Decree-Law. Article 12(1) of the Decree-Law. 14 Article 39 of the Decree-Law and Article 28 of the Executive Regulation. 13 Automotive Sector | VAT Guide | VATGAM1 27