In some situations, a supplier may make a supply of a number of goods and services as part of the same transaction.
Where there is such a supply of different goods and/or services, the supplier has to determine whether they are making a single composite supply of those goods and/or services, or multiple supplies of goods and/or services.
Where a person makes multiple supplies, the person must determine the correct VAT treatment of each of the supplies that it makes.
This means that potentially different supplies made as part of the same transaction can be subject to different VAT treatments. In such circumstances, where a single consideration was paid for multiple supplies that are subject to different VAT rates, the supplier must determine the value of each supply and apply the correct VAT treatment to that value.
Example – Multiple Supplies
A tourist visiting from the UK is booking a hotel room in Dubai using the hotel’s website for AED 1,000. While booking the room, the person added an optional extra of being picked up by the hotel from the airport. This optional airport pick- up costs an additional AED 150.
The hotel accommodation and the transportation service are two different supplies for VAT purposes. These services are clearly independent of each other and both are subject to separate charges.
As a consequence, the hotel charges VAT on the hotel room at 5% and treats the airport pick-up service as an exempt local transportation service.
A single composite supply
A single composite supply is a single indivisible supply of a mixture of goods and/or services. By being treated as a single supply, all of the goods and/or services which form part of the supply will be subject to the same VAT treatment. A single composite supply may exist, for example, where there is a principal component and incidental components in a supply for which a single price is payable.
Example – Single Composite Supplies
An airline provides free access to a lounge for all business class passengers on international flights. Since the lounge access is incidental to the provision of the supply of the international flight, both components will be treated as a single composite supply subject to VAT at 0%.