Providing multiple products or services together in one transaction is a common business scenario. While there are various reasons for bundling these goods or services as part of the same deal, what matters most to the supplier is understanding the impact of VAT Registration on such supplies. This is because, depending on the nature of the goods or services provided in a single transaction, UAE VAT law categorizes them into two types:
Single Composite Supply
Based on the type of supply, a transaction can be classified as either multiple supplies or single composite supplies. Both have different VAT Registration UAE treatments. In this article, we’ll discuss multiple supplies.
Multiple supplies refer to providing more than one component of goods or services for a single price, but they are not bundled due to necessity. In other words, it is not essential that these goods or services always need to be supplied together, and they can be provided separately in the normal course of business.
With multiple supplies, different supplies made as part of the same transaction can be subject to different VAT rates. In such cases, where a single payment was made for multiple supplies subject to different VAT rates, the supplier must determine the value of each supply and levy VAT Registration accordingly. This means goods and services supplied as part of the same transaction need to be identified individually, to determine the tax invoice applicability on each supply – whether taxable or exempt, and VAT charged accordingly.
Let’s understand this with an example:
Mr James, a visitor from Australia, booked a Dubai hotel room online for AED 2,000. While booking, Mr James also opted for the extra service of airport pickup by the hotel for AED 250. For the services, the hotel charges a single price of 2,250 AED.
For the hotel to levy VAT, they need to determine whether it’s multiple supplies or a single composite supply. First, they need to identify the different types of supplies made available in the same transaction and determine if they always need to be provided together.
In this example, hotel accommodation and transportation services are not essentially required to be supplied together and they are clearly independent. Hence, the hotel room and airport pickup are two different supplies for VAT Dubai purposes and are considered multiple supplies.
As a result, the hotel charges 5% VAT on the hotel room and treats the airport pickup as an exempt local transportation service. Therefore, VAT Registration Dubai is levied only on the hotel accommodation service, which is 5% of AED 2,000.
The key point for suppliers providing multiple supplies in one transaction is to determine the value of each supply and charge VAT accordingly, if applicable.