VAT on Vouchers / Discounts / Gift Cards
Consumers are usually rendered free vouchers, gift cards, cashback schemes, promotional discounts on goods and services in order to attract them to return again for more. We have compiled several instances where VAT is applicable on such offers or not.
VAT on Discounts
Discount is usually referred to as reduction in price. In UAE VAT, the value of a supply should be reduced in proportion to discounts made before or after the date of supply. In other words, the VAT i.e. 5% will be charged on the value which is arrived after considering the discount.
VAT on Free samples
Free samples are given to pilot test a new product or service or to attract attention of customers. Supply of free samples are termed as ‘deemed supply’ and VAT of 5% is payable on such deemed supply if only taxable value crosses the limit of AED 500 or the worth of all these supplies the duration of twelve months is over 40,000 AED.
VAT on Lucky draws / Lotteries
Customers will take part in the lucky draw and get a chance to win a prize. Customers are often required to spend a minimum value in order to participate in the draw. However, sometimes draws are made randomly and they may not be required to buy anything. In that case, the gifts/prices distributed to participants could fall within the scope of the deemed supply.
VAT on Cashback by Banks or Third Party
Third-party/banks join hands with businesses to provide customers with cash back after purchase. Business shall supply the customer for full consideration and, subsequently, the third-party/banks shall provide the customer with cashback upon receipt of confirmation of supply from the retailers. The cashback provided by third-parties/banks would be recognized as a separate transaction. Since there is no underlying supply of goods or services between banks and customers involved or between businesses and banks / third parties, the transaction should be treated as outside the scope of VAT. And hence VAT is not payable on such transactions.