# Directive on Tax Transactions No. 5 of 2026 for Value Added Tax on the Method to Determine the Value of Deemed Supplies of Services

- Source page: https://solvefortax.com/legislation/306
- Topic: VAT
- Type: Directive
- Status: Active
- Chapter: V. Tax Calculation and Payment
- Issued: July 20, 2026
- Effective: 20 July 2026
- Official PDF: https://solvefortax.com/api/pdfs/2026-5-VAT-Valuation-of-Deemed-Supplies-07-2026.pdf
- Publisher: Solve for Tax, UAE Tax Law Library (https://solvefortax.com/)

## Summary

This Directive establishes the methodology for Taxable Persons to determine the value of Deemed Supplies of Services for VAT purposes. It implements Article 37 of the VAT Law by requiring Taxable Persons to base the value on total costs on which Input Tax was incurred, including both direct and indirect costs. The Directive prescribes a four-step calculation mechanism: determining the open market value of the services (or comparable services if unavailable), calculating the estimated total cost by removing the profit element using the net profit margin from the previous financial year's statements (or sector average if unavailable), calculating the percentage of costs on which Input Tax was incurred relative to total costs in the previous financial year, and applying this percentage to the estimated total cost to arrive at the final deemed supply value. This calculation methodology provides clarity and consistency for valuing deemed supplies where services are provided without consideration or below market value.

## Key points

• Taxable Persons making Deemed Supplies of Services must determine the value based on total costs (direct and indirect) on which Input Tax was incurred, in accordance with Article 37 of the VAT Law
• Step 1: Determine the open market value of the Services constituting the Deemed Supply; if unavailable, use the open market value of comparable Services
• Step 2: Calculate estimated total cost by excluding the profit element from the open market value by dividing by (1 + the net profit margin)
• The net profit margin shall be calculated based on the Taxable Person's financial statements for the preceding financial year
• Where the Taxable Person's net profit margin cannot be determined, the average net profit margin prevailing in the sector in which the Taxable Person carries on its Business may be used
• Step 3: Calculate the percentage of costs in respect of which Input Tax was incurred to the total costs incurred during the previous financial year
• Step 4: Calculate total costs on which Input Tax was incurred by applying the percentage from Step 3 to the estimated total cost from Step 2
• The final calculated cost constitutes the value of the Deemed Supply of Services for Article 37 purposes
• Issued on 6 Safar 1448H corresponding to 20 July 2026
• Directive shall be published in the Official Gazette

## This document relies on

- [Federal Decree-Law No. 8 of 2017 on Value Added Tax and amendments](https://solvefortax.com/legislation/127) (refers to)
- [Federal Decree-Law No. 28 of 2022 on Tax Procedures](https://solvefortax.com/legislation/72) (issued under)
- [Cabinet Decision No. 52 of 2017 - The Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax](https://solvefortax.com/legislation/129) (issued under)
- [Federal Tax Authority Decision No. 2 of 2026 on the Authority's Policy on Issuing Clarifications and Directives](https://solvefortax.com/legislation/148) (issued under)

## Full text

# Directive on Tax Transactions No. 5 of 2026 for Value Added Tax on the Method to Determine the Value of Deemed Supplies of Services

**The Federal Tax Authority,**

- having reviewed the Constitution,
- Federal Decree-Law No. 13 of 2016 on the Establishment of the Federal Tax Authority, and its amendments,
- Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments (referred to as “VAT Law”),
- Federal Decree-Law No. 28 of 2022 on Tax Procedures and its amendments,
- Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax, and its amendments,
- Federal Tax Authority Decision No. 5 of 2021 on the Authority’s Policy on Issuing Clarifications and Directives, and its amendments, and
- Decision of the Chairman of the Board of Directors of the Federal Tax Authority No. 9 of 2021 on the Delegation to the Vice Chairman of the Board of Directors of the Federal Tax Authority,
- the approval of the Board of Directors of the Federal Tax Authority,

**has decided the following:**

1. A Taxable Person making a Deemed Supply of Services shall determine the value of that Deemed Supply based on the total costs on which Input Tax was incurred (direct and indirect costs) to make that Deemed Supply, in accordance with Article 37 of the VAT Law.
2. For the purposes of Clause 1 above, the Taxable Person shall calculate the total costs on which Input Tax was incurred, in accordance with the following mechanism:
   a. Determine the open market value of the Services constituting the Deemed Supply. Where the open market value of such Services cannot be determined, the open market value of comparable Services shall be used.
   b. Calculate the estimated total cost of the Services by excluding the profit element from the open market value determined in paragraph (a) above. This shall be done by dividing the open market value by (1 + the net profit margin). The net profit margin shall be calculated based on the Taxable Person's financial statements for the preceding financial year. Where the Taxable Person's net profit margin cannot be determined, the average net profit margin prevailing in the sector in which the Taxable Person carries on its Business may be used.
   c. Calculate the percentage of the costs in respect of which the Taxable Person incurred Input Tax to the total costs incurred by the Taxable Person during the previous financial year.
   d. Calculate the total costs in respect of which the Taxable Person incurred Input Tax, by applying the percentage calculated under paragraph (c) above to the estimated total cost of the Services calculated under paragraph (b) above.
3. The cost calculated in accordance with Clause 2 above shall constitute the value of the Deemed Supply of Services for the purposes of Article 37 of the VAT Law.
4. This Directive shall be published in the Official Gazette.

**Mohamed bin Hadi Al Hussaini**
**Minister of State for Financial Affairs**
**Vice Chairman of the Federal Tax Authority**

Issued on 6 Safar 1448H
Corresponding to 20 July 2026