Being a completely new form of indirect taxation there are many questions in the minds of the organizations. One of the most important questions is what is valuation of supply under VAT? What will be included in the value of taxable supply on which VAT is calculated?
If the entire consideration is monetary, the value of supply shall be the consideration less tax. Normally the consideration is considered inclusive of tax unless expressly it is stated to be exclusive of tax.
If all or part of the consideration is not monetary, then the value of supply is calculated as the overall monetary part plus market value of the non-monetary part of the consideration, and shall not include the tax.
Consideration is defined in Article (1) of this Decree law inter alia as “All that is received or expected to be received for the supply of Goods or Services, whether in money or other acceptable forms of payment”.
Market Value has been defined in Article (25) of Executive Regulations. Article 25(2) states that the market value of a supply of Goods or Services at a given date is the Consideration in money which the supply would generally achieve if supplied in similar circumstances at that date in the State, being a supply freely offered and made between Persons who are not connected in any manner.
In case the market value as per Article 25(2) cannot be determined; then the market value is the Consideration in money which a similar supply would achieve if supplied in similar circumstances at that date in the State, being a supply freely offered and made between Persons who are not connected in any manner.
The value of supply shall be equal to custom value pursuant to Custom Legislation, including value of insurance, freight, custom duty, excise duty (if any). The value of the supply shall be equal to the market value of the consideration without addition of the tax on that supply.
Value of supply or Import of Goods or Services between related persons shall be considered equal to the market value if the following conditions are met:
1. When the value of supply is less than the market value.
2. If the Recipient (related person) doesn’t have the right to recover full Input tax on the taxable supplies of goods or services received.
Article (40) of Decree Law states that the value of supply of a voucher is the difference between the consideration received by the supplier of the Voucher and the advertised monetary value of the Voucher.
Additionally, Article 7(1) of Decree Law states that the sale or issuance of any Voucher unless the received Consideration exceeds its advertised monetary value, as specified in the Executive Regulation of this Decree-Law, shall not be considered as a supply.
VAT law was introduced with the intention not to interrupt the continuity of ongoing business transactions. To take care of continuity, transactions that have already been contracted prior to the effective date of implementation of VAT law and concluding after the introduction of VAT requires to be suitably addressed. For this reason, this Article lays down the applicable rules. It is also important to bear in mind that prior to the implementation date of VAT law, UAE did not have any tax applicable to transactions carried out in the normal course of business. Therefore, transactions may have been entered into without contemplating the levy of any tax and this too requires a suitable transition rule.
Transition rules are necessary so as not to frustrate contracts or compel termination if they have already been entered into prior to the effective date. This Article lays down clearly the manner of treatment that will be extended under the VAT law in respect of ongoing contracts i.e. contracts/ transactions which have been initiated in pre-VAT era and to be completed in VAT era. In short, in most of the transactions, the date of supply will be the implementation date; In case of doubts in transition, the written request to the FTA could be a good option for resolution within the framework of law.
Article (80) specifically deals with Transitional Rules. If the supplier receives consideration or part thereof or issues an invoice for Goods or Services before the Decree Law comes into effect i.e. 01 Jan 2018, the date of supply shall be the same as the effective date of the Decree Law i.e. 01 Jan 2018 in the following instances if they occur after the effective date of the Decree Law i.e. 01 Jan 2018:
a. Transfer of Goods under the supervision of the supplier
b. Placing the Goods at the recipient’s disposal
c. The completion of assembly or installation of the Goods
d. The issuance of the customs declaration
e. The acceptance by the recipient of goods of the supply
If a contract has been concluded prior to the enforcement of this Decree Law, regarding a supply to be wholly or partly made after the effective date of this Decree Law, but such contract does not contain clauses related to Tax on the Supply, it shall be treated as follow:
a. The consideration shall be considered inclusive of tax if chargeable according to this Decree Law.
b. Tax shall be calculated on the supply regardless of whether it has been taken into account when determining the consideration for the supply.
Clause (3) of this Article states that the Executive Regulations will set forth special provisions related to the implementation of this Decree Law where a contract has been concluded before the effective date of the Decree Law but the supply under the contract is wholly or partly made after the effective date of this Decree Law. Article (70) of the Executive Regulation specifies the Transitional Rules that are applicable to all transactions.
Author of this article is CA Deepak Bharti who is member of ICAI and can be reached at [email protected]. Suggestions/comments are most welcome.