Introduction: The Rise of Non-Cash Deals in the UAE
In a fast-evolving UAE business landscape, cash is no longer the only currency of value.
From influencer partnerships and sponsorships to service-for-service collaborations, barter transactions are now common across industries.
They’re creative, cost-efficient, and often mutually beneficial.
But there’s a common and risky misconception:
“If no money changes hands, VAT doesn’t apply.”
In reality, under the UAE’s Federal Tax Authority (FTA) guidelines, value, not cash, determines VAT liability.
As confirmed under Public Clarification VATP042 (April 2025), barter and non-monetary exchanges are fully taxable transactions, requiring both parties to charge, invoice, and report VAT even if no payment is made.
At Horizon Biz Consultancy, we’ve helped numerous businesses across hospitality, media, and professional services navigate these nuances ensuring their barter and sponsorship arrangements remain fully compliant and audit-ready.
When “No Money” Still Means VAT Applies
Under the UAE VAT Law (Federal Decree-Law No. 8 of 2017), VAT applies to any supply of goods or services made for consideration within the UAE by a taxable person.
Here, consideration doesn’t just mean cash; it includes anything of value, even if exchanged in kind.
So, when two businesses trade goods or services, each becomes both a supplier and a customer.
Both must:
- Issue a tax invoice,
- Calculate 5% VAT on the market value (excluding VAT), and
- Report it in their VAT return.
In short, even when no money moves, VAT still applies.
FTA Clarification VATP042 What It Says
The Federal Tax Authority’s Public Clarification VATP042 (April 2025) confirms that barter transactions involve two separate supplies, one from each party.
Each supply is subject to VAT at the applicable rate, based on the market value of the goods or services provided.
Each party must:
- Account for output VAT on what they supply, and
- May claim input VAT (if eligible) on what they receive.
This ensures VAT neutrality, provided both sides properly document and declare their exchanges.
Common Examples of Barter Transactions
- Restaurant × Influencer
- Each charges 5% VAT on the market value of what they provide.
- Example: AED 900 cash + meal worth AED 100 (incl. VAT) = AED 1,000 total consideration. Both issue tax invoices.
- Furniture Supplier × Accountant
- Furniture worth AED 45,000 (incl. VAT) exchanged for accounting services worth AED 15,000 (incl. VAT) + AED 30,000 cash.
- Each issues a VAT invoice for their respective supply.
- Designer × Photographer
- Branding services traded for a photoshoot.
- Both supplies are taxable at 5%, and each issues a tax invoice.
- Contractor × Supplier
- Renovation work is exchanged for building materials.
- Each records output VAT on the market value of their supply.
- Sponsor × Event Organiser
- The sponsor gives products for event exposure.
- Each issues a VAT invoice on the market value of their contribution.
How to Determine “Market Value”
FTA VATP042 outlines three key principles for determining market value:
- Comparable Market Price – The amount similar goods or services would fetch between unrelated parties.
- Comparable Transaction Method – If no comparable price exists, use past transactions of a similar nature.
- Replacement Cost Method – If still undeterminable, use the cost from an unconnected supplier.
Market value must always exclude VAT.
This ensures fair and consistent reporting while preventing overvaluation or understatement of taxable supplies.
Recording Barter Transactions in VAT Returns
Both parties must record the transaction accurately.
Each should:
- Issue tax invoices,
- Record output VAT, and
- If eligible, claim input VAT from the other party’s invoice.
Proper cross-verification of invoices and documentation ensures that VAT positions balance correctly, maintaining compliance and reducing audit risks.
Frequent Mistakes Businesses Make
Despite clear FTA guidance, many businesses still make compliance errors in barter and non-cash transactions.
Some of the most common include:
- Not issuing VAT invoices because “no cash was paid.”
- Reporting only one side of the exchange.
- Using inclusive values instead of market value excluding VAT.
- Claiming input VAT without a valid tax invoice.
- Failing to declare barter transactions in VAT returns.
Such mistakes can trigger FTA penalties, reverse input VAT eligibility, or result in fines during audits.
Updated FTA Penalties for Non-Compliance (Effective April 2026)
| Violation | Penalty |
| Failure to issue a Tax Invoice or Tax Credit Note | AED 2,500 per instance |
| Failure to file a VAT return on time | AED 1,000 first time / AED 2,000 on repetition |
| Submitting an incorrect VAT return without voluntary disclosure | AED 500 |
| The incorrect return was not disclosed before the FTA audit | 15% of tax difference + 1% monthly |
| Late payment of VAT due | 14% per annum (monthly) |
| Failure to keep VAT records | AED 1,000 per case / AED 20,000 if repeated |
FTA has made it clear accurate reporting, timely filing, and proper documentation are essential to avoid unnecessary penalties and maintain compliance.
Best Practices for Barter & Sponsorship VAT Compliance
At Horizon Biz Consultancy, we recommend these key practices to ensure compliance:
Formalise Agreements Draft written contracts that specify:
- Nature of goods/services exchanged
- Market values (excluding VAT)
- Timelines
- VAT clauses and responsibilities
Issue Proper Tax Invoices – Even in barter or sponsorship transactions, both parties must issue VAT-compliant invoices as required under Article 65 of the VAT Law.
Maintain Records for Five Years – Keep all contracts, invoices, and valuation documents to support your VAT filings and audits.
Use Realistic Market Data – Reference comparable sales, third-party quotations, or past transactions to determine fair market value.
Seek Expert Review – Before entering large or complex barter deals, have your VAT treatment reviewed by professionals to ensure compliance and accuracy.
Who Should Pay Attention
Industries most affected by barter and sponsorship VAT requirements include:
- Hospitality & F&B – influencer collaborations, partnerships, and event sponsorships.
- Media & Advertising – sponsorship and brand exchange deals.
- Construction & Interiors – service-for-materials exchanges.
- Professional Services – cross-industry collaborations and referral partnerships.
In all these cases, VAT must be calculated on the value exchanged, not just on monetary transactions.
Strategic Benefits of Transparency
VAT compliance in barter and non-cash transactions isn’t just about avoiding penalties; it’s about building trust and transparency.
Proper VAT treatment helps businesses achieve:
- Accurate financial reporting
- Higher investor and auditor confidence
- Lower audit risk
- Improved internal governance
For forward-looking businesses, compliance strengthens reputation and operational credibility.
Conclusion: Every Exchange Has Value and VAT
The key takeaway is simple:
Whenever value is exchanged, VAT applies even if no cash changes hands.
In the UAE’s collaborative business ecosystem, barter transactions, sponsorships, and influencer arrangements are increasingly common. But with the FTA’s VATP042 guidance, businesses must treat these deals as fully taxable supplies complete with invoicing, valuation, and recordkeeping.
At Horizon Biz Consultancy, our VAT specialists help businesses:
- Review barter contracts and sponsorship structures,
- Determine accurate market values,
- Issue compliant VAT invoices, and
- Ensure full FTA compliance and audit readiness.
Because in modern business, innovation thrives only when compliance is strong.
Legal References
- FTA Public Clarification VATP042 (28 April 2025) – Value of Supply: Barter Transactions
- Federal Decree-Law No. 8 of 2017 – Value Added Tax and amendments
- Cabinet Decision No. 52 of 2017 – Executive Regulation
- Cabinet Decision No. 40 of 2017 – Administrative Penalties, as amended by Decision No. 129 of 2025
FAQ’s
Yes. As clarified by the Federal Tax Authority (FTA) in Public Clarification VATP042, barter and non-cash transactions are treated as two separate taxable supplies, one from each party. Even if no money changes hands, both parties must issue VAT invoices, charge 5% VAT, and report the transaction in their VAT return.
The fair market value (FMV) is the price that the goods or services would fetch in an open market between unrelated parties. You can determine it using:
– The standard selling price of similar goods or services,
– Comparable past transactions, or
– Third-party quotations or replacement cost.
Always ensure the value excludes VAT and is backed by documentation.
Failing to issue a tax invoice is a compliance violation under the UAE VAT Law. The FTA may impose penalties, disallow related input VAT claims, or scrutinise the transaction during an audit. Every taxable supply, including barter and sponsorship exchanges, requires a valid VAT invoice.
Yes, if the influencer or sponsor is VAT-registered and the transaction is for business purposes, they may claim input VAT on the goods or services received, provided they hold a valid tax invoice from the other party.
If only one of the two parties is VAT-registered, then only the registered party is required to charge and account for VAT on the goods or services they supply. The non-registered party, however, cannot charge VAT or claim input VAT on what they receive.
