Discounts are often used by businesses as a sales strategy to attract customers. A discount is a reduction in price. The seller must deduct the discount from the gross or total price and the buyer must pay the net amount. This is one of the oldest sales strategies, especially for B2B markets, to entice buyers to buy more or to get them to buy the product or pay on time.
There are many reasons to allow discounts, but the point here is: How are discounts treated under UAE VAT? Although the practice of granting discounts is not new to businesses, you may be interested in knowing how the practice of granting discounts works. The granting of discounts is processed through the UAE VAT system. This is new and businesses need to understand and make changes as necessary, considering the potential impact on their sales strategies.
The most common question that most of us will have is: “Will he be charged VAT on the amount after taking into account the discount? “Or is it the complete delivered quantity without taking into account discounts?”
Let’s understand the discount provisions of UAE VAT law and answer the above questions.
The UAE VAT Law provides guidelines for the treatment of discounts granted on the supply of goods and services. For VAT purposes in the UAE, the value of the supplies must be reduced proportionately to any discounts granted before or after the date of delivery. In other words, VAT is charged on the value obtained after taking into account discounts.
For example, the delivery amount is AED 10,000 and the discount is AED 500. In this case, the shipping amount will be AED 9,500, calculated taking into account the discount amount.
Discounts may be deducted from the delivery price only if the following conditions as stipulated by UAE VAT regulations are met:
Customers benefit from price reductions.
Supplier funded the discount.
The above conditions make it clear that the discount benefit should be passed on to the customer and, more importantly, the discount should be financed by the supplier.
Let’s understand with an example.
Abdul Automobiles purchases accessories from Ali Spares Ltd. for AED 100,000.A 5% discount on prices will also be offered as part of the festival program.
Rechnung
Sl.No
Warenbeschreibung
Menge
Preis (AED)
Pro
Betrag (AED)
1
44 44 Ersatz style
100
1000
Nr.
100.000
Labatt 5D
4 -5.000
MwSt. @5D
44.750 44 44
Gesamt
100
99.750
444 4
The invoice states
and the cost of the spare parts is AED 100,000.
5% discount i.e. H. AED 5,000 will be deducted from the delivery amount. AED 95,000 plus VAT of 4,444 (AED 100,000 – AED 5,000 * 5% VAT).
From above For example, it is clear that VAT is only charged on the amount after deducting the discount. Therefore, it is assumed that the existing business practice of granting discounts will continue unchanged as long as the above discount conditions are met.
You can also register for VAT Registration on our website:
https://www.vat-registration-uae.com/