VAT registered businesses should not advertise taxable goods or services as free of VAT or sell such goods or services without accounting for 5% VAT, except where the supply qualifies for zero-rating. In this clarification, Federal Decree-Law No. 8 of 2017 on Value Added Tax is referred to as “Decree-Law”, Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments is referred to as the “Executive Regulation”, Federal Law No. 7 of 2017 on Tax Procedures is referred to as “Tax Procedures Law”, and Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE is referred to as “Cabinet Resolution No. 40”. Liability to impose VAT According to Article 2(1) of the Decree-Law, VAT shall be imposed on every taxable and deemed supply made by a taxable person. Article 1 of the Decree-Law defines the terms –

• “taxable person” as any person registered or obligated to register for tax purposes.
• “taxable supply” as a supply of goods or services for a consideration by a person conducting business in the United Arab Emirates (“UAE”), and does not include an exempt supply.

Consequently, where the seller is a taxable person, the seller is, according to Article 3 of the Decree-Law, required to impose 5% VAT on the supply of all goods and services in the UAE, except where the Decree-Law explicitly provides for zero-rating or exemption. Based on the above, any promotional campaign stating that the supply of promotional goods is “VAT-free” is misleading as the seller is obliged to impose VAT on these supplies. The seller may, however, make a commercial decision to offer a discount equivalent to the amount of VAT. As a consequence, VAT is always payable on taxable supplies and the seller is not entitled to choose whether or not VAT should be imposed on a supply. Discounts Sellers may take a commercial decision to absorb VAT in order to make the price of promotional goods more attractive to potential buyers, these are commonly referred to as “VAT-on-us” promotions. In these instances the seller is regarded as granting a discount to its customer which is equal to the VAT amount imposed on the promotional goods or services. According to Article 39 of the Decree-Law, in the case of a discount, the value of the supply is reduced in proportion to the discount. Article 28(3) of the Executive Regulation confirms that the value of the discount is the amount by which the consideration is reduced. For example, if a motor vehicle’s normal price is AED105,000 and a special VAT-on-us promotional price is AED100,000, the seller is regarded as providing a AED5,000 discount to its customer. VAT inclusive prices According to Article 38 of the Decree-Law, the advertised price of taxable supplies shall include the VAT. Article 27(1) of the Executive Regulation  confirms that, in the case of a taxable supply, the published prices shall be inclusive of VAT. According to Article 27(2) of the Executive Regulation, the taxable person may, however, declare VAT exclusive prices if the goods or services will