What is a deemed supply in UAE VAT?
Short answer
A deemed supply is a case where the VAT Law charges VAT even though nothing was sold. Article 11 of the UAE VAT Law lists the cases: business goods or services given away without payment; business assets moved between the UAE and another GCC state that applies VAT (with exceptions); goods or services on which input tax was recovered but that are used for non-business purposes, to the extent of that use; and goods and services the business still owns when it deregisters.
There are exceptions. The Executive Regulation (Article 5) excludes gifts worth up to AED 500 per recipient in 12 months, and caps the VAT on certain deemed supplies at AED 2,000 per supplier in 12 months; Article 12 of the VAT Law sets the cases these limits apply to.
What the law says
Federal Decree-Law No. 8 of 2017 on Value Added Tax and amendments, Article 11
Article 11 – Cases of Deemed Supply
The following cases shall be a Deemed Supply:
- 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.
- 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. - 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.
- Goods and Services that a Taxable Person owns at the date of Tax deregistration.
Cabinet Decision No. 52 of 2017 - The Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 5
Article 5 – Exceptions related to Deemed Supply [^6]
- For the purposes of Clause 4 of Article 12 of the Decree-Law, the value of the supply of Goods for each recipient, within a 12-month period, shall not exceed AED 500 (five hundred dirhams).
- For the purposes of Clause 5 of Article 12 of the Decree-Law, the total of Output Tax payable on all Deemed Supplies shall not exceed the following:
a. An amount of AED 2,000 (two thousand dirhams) for each supplier, within a 12-month period, and any amount exceeding this threshold shall be considered Payable Tax.
b. An amount of AED 250,000 (two hundred fifty thousand dirhams) for each supplier that is a Government Entity or a Charity in case the recipient is a Government Entity or a Charity, within a 12-month period, and any amount exceeding this threshold shall be considered Payable Tax. - For the purposes of Clauses 1 and 2 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 these Clauses.
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