Is VAT charged on free samples?

Article 12 – Exceptions from Deemed Supply A supply is not considered as deemed in any of the following cases: 1. If no Input Tax was recovered for the related Goods and Services. 2. If the supply is an Exempt Supply. 3. If the recovered Input Tax has been adjusted for the Goods and Services pursuant to the Capital Assets Scheme. 4. If the value of the supply of the Goods, for each Recipient of Goods within a 12month period, does not exceed the amount specified in the Executive Regulation of this Decree-Law, and the Goods were supplied as samples or commercial gifts. 5. If the total Output Tax due for all the Deemed Supplies per Person for a 12-month period is less than the amount specified in the Executive Regulation of this DecreeLaw. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 10 Title Four – Tax Registration and Deregistration

Article 11 – Cases of Deemed Supply The following cases shall be a Deemed Supply: 1. A supply of Goods or Services, which constituted the whole assets of a Taxable Person’s Business or a part thereof, but are no longer considered to be as such, provided that the supply was made without Consideration. 2. The transfer of Goods which constituted part of the Taxable Person’s Business assets in the State to his Business in an Implementing State, or from the Taxable Person’s Business in an Implementing State to his Business in the State, except in the case where the transfer of Goods: a. Is considered as temporary under the Customs Legislation. b. Is made as part of another Taxable Supply of these Goods. 3. A supply of Goods or Services for which Input Tax may be recovered but the Goods or Services were wholly or partially used for purposes other than Business. Such supply shall be considered as deemed only to the extent of the use for purposes other than Business. 4. Goods and Services that a Taxable Person owns at the date of Tax deregistration.

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