VAT LEGISLATION ON SAMPLES AND GIFTS
Your business may be accustomed to providing your customers gifts and samples to stimulate demand and build incentives for business. Prior to the introduction of the Executive Regulations governing VAT, this policy did not attract many limitations on value of samples or gifts as long as they did not breach company or regulatory implications.
However, clear rules now apply to how businesses must address the VAT implications for this practice. All taxable supplies are subject to VAT whether they have a monetary exchange or not and these must be set for VAT at fair market value to ensure the correct VAT amount is accounted for in your VAT return.
Therefore even if you are not receiving any payment, they must be valued accurately and VAT must be accounted for. Gifts are provided without any monetary exchange hence gifts and samples are related under the legislation.
In case of gifts and samples. they subject to specific rules which must be taken into account and managed within your business. Under Article 5 of the Executive Legislation, the treatment of gifts and samples are limited in value to any one customer for a defined period. The specific section of the Regulation states:
Exceptions related to Deemed Supply
1. The supply shall not be regarded as a Deemed Supply in any of the following instances:
a. Where the Input Tax on the relevant Goods or Services is not recovered.
b. Where the supply is exempted.
c. Where the refunded Input Tax on Goods and Services is amended according to the Capital Assets Scheme.
d. Where the value of the supply of Goods for each recipient, within a 12-month period, does not exceed AED 500, and the supply made is to be used as samples or commercial gifts.
e. Where the total of Output Tax payable on all Deemed Supplies for each Person for a 12-month period is less than AED 2,000.
2. For the purposes of Paragraphs (d) and (e) of Clause (1) of this Article, the 12-month period is a period preceding the end of the month in which the Person makes a supply referred to in either of those Clauses.
This implies you have limits for any one customer for gifts, the VAT on these gifts cannot be recovered and applicable in the specified 12-month period. For most business to ensure they are compliant, the onus falls on Finance to communicate and manage this policy with the correct accounting of any gifts/samples/deemed supplies that exceed these criteria.