Will UAE businesses have to factor in multiple VAT charges?

Every supply — whether of goods or services — has four possible VAT treatments: standard-rated, zero-rated, exempt or outside the scope of VAT.

- BY PANKAJ S. JAIN

A supply could involve multiple elements/components. The VAT treatment could be determined for each component either individually (‘multiple supplies’) or collectively (‘single composite supply’). The UAE VAT laws have adopted the two universal tests to distinguish between ‘single composite supply’ and ‘multiple supplies’.

The first test is that of a principal component and incidental/ ancillary components. The second test is that of unnatural splitting of closely linked elements of a supply. The two tests not only identifies a single composite supply if the transaction is artificially split into multiple components, but also vice versa.

Recent VAT laws amendment

Effective November 15, 2024, for a single composite supply to exist, the price of different components of the supply should not be separately identified or charged by the supplier. If the tax invoice — or, the quote or the underlying contract — reflects the price of each component separately, the supply would not qualify as a single composite supply.