Taxable Supply Concept in UAE VAT

A taxable supply is defined in the VAT legislation as a “supply of goods or services for a consideration by a person conducting business in the UAE, and does not include an exempt supply”. As a consequence, for a supply to be a taxable supply, the following conditions would generally need to be met:

  1. there needs to be supply of goods or services;
  2. the supply has to be for consideration; and
  3. the supply has to be made by the person who is conducting business in the UAE.

Taxable supplies may either be subject to the standard rate or zero rate of VAT. A supply cannot be a taxable supply if it is an exempt supply. Where a supply is neither a taxable supply nor an exempt supply, it will be outside the scope of UAE VAT.

A supply of “goods and services”

As a first step, it is necessary to establish whether a person is supplying goods or services. This determination is important because some VAT rules apply differently to goods and services – for example, the date of supply and the place of supply rules.

Broadly, a supply will be of goods if there is a transfer of the ownership of any property or assets, or the transfer or granting of the right to use the property or assets as the owner. Some supplies are expressly treated in the legislation as a supply of goods – for example, a supply of water, energy or real estate will be treated as a supply of goods.

A supply has to be for “consideration”

For a taxable supply to exist, the supply must be made in return for consideration. “Consideration” is a defined term in the VAT legislation and includes anything that is received or expected to be received for the supply of goods or services, whether in money or other forms of payment.

As a consequence, the supplier of any goods and services has to carefully consider what it receives in return for any supply made by it. In doing so, the supplier should not only consider any monetary benefit being received, but also any goods or services that it may be receiving in exchange.

A supply of services is the supply of anything other than a supply of goods.

A supply has to be by a person conducting business in the UAE

The next requirement for a taxable supply is that the supply has to be made by the person who is conducting business in the UAE.

It is important to understand the difference between business and non-business activities. The definition of “business” is very broad and includes any regular or ongoing activity conducted independently by a person. As such, a person may be conducting business irrespective of the industry or location of the activities, as long as the activity has a degree of independence and recurrence or continuity.

Due to the requirement that a business must be an independent activity, activities of employees will not be treated as being in the course of business. As such, employees will not charge VAT in respect of their employment. In contrast, activities of independent contractors would be in the course of business and therefore can give rise to the requirement to charge VAT.

The second part of the test is that the business has to be conducted in the UAE. For VAT purposes, this requirement will be met if the place of supply is in the UAE.