Business scenarios where price is not the only consideration in the offer, i.e. H. If all or part of the consideration is made on non-monetary terms, the value of the offer is It must be determined in accordance with the guidelines set out in the VAT Act. This article discusses valuing the supply of goods or services when the consideration is not entirely monetary.
For information on how to determine the value of an offer when the consideration is entirely monetary, see How to Determine the Value of an Offer.
Let’s better understand what consideration is for non-monetary offers.
Let’s go back to the beginning of civilization, when trade was practiced to exchange goods, known as the “barter system.” In this system, people exchanged goods and services for other goods and services without receiving monetary compensation. Today, the centuries-old barter system has been revived with an improvised method called the “exchange offer.” In this system, a portion of the product is paid for in cash and in exchange for the old product. For example, a TV is sold for his 25,000 dirhams and at the same time the old TV is also replaced.
Based on the example above, assuming the value of the package is AED 25,000, you could run into trouble and potentially lead to a lawsuit. This is because AED 25,000 is part of the price received in exchange for providing the television and is not the only price required to determine the value of the quantity provided. Therefore, for this type of supply, the value of the supply must be derived by applying the following indicator:
Monetary value + Market value of the non-monetary part = Value of the supply
From the above formula, That is clear. This is used to determine the value of the offer and the market value of the non-monetary portion must be determined. But how do you know market value? Again, the UAE VAT Law provides the following guidelines for determining market value:
The market price of a supply of goods or services at a particular date is the monetary consideration that such supplies (nonmonetary products or services) would receive. It is achieved when it is provided under similar circumstances between people who at the time had no relationship in the state.
For example, let’s take the television example. We will deliver your TV and replace your old one for Dh25,000. The value of the old TV, if handed over, is Dh5,000.
In such cases, the taxable amount is the sum of the monetary consideration received and the monetary value of the products or services received in return. Therefore, the taxable value of the television supply is:
Cash consideration 25,000 dirhams + monetary value of old TV 5,000 dirhams = 30,000 dirhams
As mentioned in point 1, if the market price for a supply of goods or services cannot be determined for any reason at a particular point in time, the market price would be achieved if a similar supply were provided in the following circumstances: It is a monetary consideration. At this point, it’s a handover between completely unrelated people. Here, a similar supply in relation to a supply of goods or services means a supply of other goods or services that is very or substantially similar in respect of the characteristics, quality, quantity, functional components, materials and reputation of that supply; is understood to mean. products and services.
For example, at the same time as replacing an old TV, he will receive a TV for 25,000 dirhams. Suppose you don’t know the market value of your old TV. In this case, to determine the value of your old TV, you need to compare it with similar products.
Innovative Solutions has a similar product priced at Dh10,000. The value of the delivery is therefore determined taking into account AED 10,000.
Cash consideration: AED 25,000 + Monetary value of the old TV: AED 10,000 = AED 35,000
If for any reason the market value cannot be determined by applying the above indicators, the market value should be determined based on replacement cost. there is. The provision of identical goods or services provided by a supplier that is not affiliated in any way with the recipient of goods or the recipient of services.
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