The Federal Tax Authority (FTA) has issued Public Clarification VATP020 to address a growing trend in the UAE retail market: businesses advertising taxable goods and services as “VAT-free.”
VATP020 PDF Click here to View
While such promotions may appear attractive to customers, the clarification makes one point absolutely clear:
If you are VAT-registered, you cannot sell taxable goods without VAT.
At The Capital Zone, we break down what this means for your business and how to stay compliant.
VAT is Mandatory on Taxable Supplies
Under Article 3 of Federal Decree-Law No. 8 of 2017 on VAT, a standard rate of 5% VAT applies to all taxable supplies in the UAE unless the supply is specifically:
- Zero-rated, or
- Exempt
This means VAT-registered businesses must impose VAT on taxable goods and services. It is not optional, and it is not a commercial choice.
Why “VAT-Free” Advertising Is Misleading
The FTA clarified that advertising taxable supplies as “VAT-free” is misleading because:
- The goods/services are not actually supplied free of VAT.
- VAT remains legally applicable.
- The seller cannot choose whether to apply VAT.
Even if a promotion is marketed as “VAT-free,” VAT is still legally included in the price paid by the customer.
What Is Allowed? “VAT-on-Us” Promotions
Businesses may take a commercial decision to absorb VAT themselves. These are commonly known as:
“VAT-on-us” promotions
In this case:
- The seller effectively grants a discount equal to the VAT amount.
- VAT is still accounted for.
- The supply remains taxable.
Example
If a vehicle normally costs AED 105,000 and is promoted for AED 100,000 under a “VAT-on-us” offer:
- The AED 5,000 difference is treated as a discount.
- VAT is still calculated on the discounted value.
If a product is advertised as AED 100,000 “VAT-free”:
- AED 100,000 is treated as a VAT-inclusive amount.
- VAT payable = 100,000 ÷ 21 = AED 4,761.90
- The business must report this VAT in its return.
The wording of the campaign does not change the tax treatment.
VAT-Inclusive Pricing Is Mandatory
Under Article 38 of the VAT Decree-Law:
Advertised prices for taxable supplies must be VAT-inclusive.
Exceptions apply only in limited cases, such as:
- Exports
- Supplies to VAT-registered customers (in specific scenarios)
For retail businesses especially, displaying VAT-exclusive pricing without meeting legal exceptions may result in non-compliance.
Tax Invoice Requirements
All tax invoices for promotional goods must comply with Article 59 of the Executive Regulations, including:
- “Tax Invoice” clearly displayed
- Supplier TRN
- Customer TRN (if registered)
- VAT rate (5%)
- VAT amount in AED
- Gross amount payable
- Any discount clearly shown
Failure to meet invoicing requirements may result in administrative penalties under UAE tax laws.
Key Compliance Risks for Businesses
If your business:
- Markets products as “VAT-free”
- Does not correctly account for VAT in returns
- Fails to issue compliant tax invoices
- Incorrectly displays VAT-exclusive prices
You may face:
- Administrative penalties
- Tax reassessments
- Compliance audits
Final Thoughts from The Capital Zone
Promotional campaigns can be powerful marketing tools — but they must align with UAE VAT legislation.
The FTA’s VATP020 clarification reinforces a fundamental principle:
VAT is always payable on taxable supplies unless legally zero-rated or exempt.
Businesses cannot bypass VAT through promotional wording.
If you are planning discount campaigns or “VAT-on-us” offers, ensure:
- Proper accounting treatment
- Correct VAT calculation
- Compliant invoicing
- Accurate price display
Need Expert VAT Guidance?
At The Capital Zone, we help businesses structure promotions, pricing models, and tax reporting in full compliance with UAE VAT law.
Contact our VAT advisory team today to ensure your business remains compliant while maximizing commercial impact.
