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May 15, 2026

This Public Clarification (VATP020) addresses the VAT treatment of promotions advertised as 'VAT-free' or 'VAT-on-us'. It asserts that such marketing is misleading, as suppliers must account for 5% VAT on all taxable goods and services. The Federal Tax Authority clarifies that these offers are treated as discounts, with the final price paid by the customer considered inclusive of VAT. The seller is therefore obligated to calculate and remit the correct output tax from the total consideration received. This ensures compliance with VAT obligations, particularly the rules on pricing and discounts outlined in Articles 38 and 39 of the VAT Decree-Law.

VATP020

VAT Public Clarification

'VAT-free' special offers

Issue

Numerous retailers are offering "VAT-free special offers" as promotions to entice prospective buyers to purchase goods or services within a promotional period.

Referring to "VAT-free special offers" is misleading and contrary to the VAT legislation, since the goods or services are not actually supplied free of VAT.

This Public Clarification clarifies the VAT treatment of promotions where the seller absorbs VAT on promotional goods. For purposes of this clarification, the term "promotional goods" refers to goods which are sold as part of a special promotion.

Summary

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.

Detailed discussion

Legislative background

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.