Vouchers and VAT implication in UAE

Vouchers have become indispensable across a multitude of industries. It offers customers diverse opportunities to access products, services, or discounts. The implementation of the Value Added Tax decree law, as amended, and the cabinet decisions related to the executive regulations of the federal decree law on value-added tax, as amended, have prompted businesses to thoroughly assess their operations.

This article seeks to explore the utilization of vouchers across diverse industries in the UAE, as well as the overarching VAT implications in accordance with UAE VAT legislation. Voucher usage has become prevalent throughout the UAE, with evolving applications emerging as practices evolve. We have illustrated real-life scenarios, both traditional and innovative, and delved into the challenges that taxpayers encounter. In light of this overview, businesses should contemplate their voucher practices and ensure alignment with the UAE VAT regulations.

Voucher: Best item for business growth across industries

Over the years, vouchers have undergone a transformation, moving away from traditional paper-based formats to adopt contemporary digital alternatives such as tokens and e-vouchers. These innovative voucher types offer heightened convenience, immediate access, and effortless redemption experiences, perfectly tailored to the digital age. They serve as versatile tools for businesses, enabling enhanced customer engagement and the implementation of effective loyalty programs.

Retail and malls:

In the retail sector of the UAE, vouchers play a versatile role, effectively boosting customer engagement and stimulating sales. Retailers employ promotional vouchers to attract customers with enticing discounts and exclusive offers. Vouchers also serve as a means of compensation for dissatisfied customers, nurturing brand loyalty. These vouchers can vary in scope, with some being specific to a single retailer, while others offer redemption options at multiple stores within a mall or affiliated locations. Additionally, third-party voucher providers play a pivotal role in driving the adoption of vouchers, thereby increasing sales for participating businesses. As the industry continues its journey toward digitalization, both traditional and digital voucher options cater to a wide array of customer preferences, ultimately contributing to heightened customer retention and sustained growth.

Banking:

In the UAE, points-based rewards programs offered by credit card companies have become increasingly popular. Under these programs, customers accumulate points with each transaction, which can be exchanged for gift cards, including those for dining or shopping, thereby creating a mutually advantageous situation for both banks and cardholders. Alternatively, these accrued points can be directly redeemed for a wide range of goods or services.

Gaming:

Within the gaming sector, vouchers take the form of in-game currencies, providing players with the means to access exclusive content, obtain virtual items, and elevate their gaming experience. As an illustration, a well-known UAE-based game enables players to acquire in-game currency through purchases, thereby driving revenue growth for the game developer.

Hospitality:

In the realm of the hotel industry, loyalty programs are frequently utilized to recognize and reward guests. These programs offer guests vouchers for reduced-rate stays, complimentary services, or room upgrades, creating a strong bond of customer loyalty and encouraging repeat bookings. This mutually advantageous arrangement benefits both hotels and their valued guests.

UAE VAT legislation on vouchers:

Comprehending the VAT ramifications of vouchers is essential for businesses to adeptly navigate the UAE VAT framework. The UAE VAT legislation offers valuable guidance on how vouchers should be handled.

When examining voucher regulations in different jurisdictions, it becomes evident that their application has developed over time, shaped by both case law and legislative amendments. Given the absence of UAE-specific case law regarding vouchers, businesses are compelled to depend on legislative provisions and the initial guidance offered by the FTA (Federal Tax Authority). Nonetheless, insights garnered from FTA audits and private clarifications can offer additional context and comprehension when it comes to implementing voucher rules in a variety of scenarios and across diverse industries.

As businesses confront a range of voucher-related circumstances, keeping abreast of updates and official interpretations from tax authorities becomes essential to ensure that VAT practices remain compliant.

For example, we can refer to Article 1 of the UAE VAT Law, where a voucher is defined as “Any instrument that gives the right to receive Goods or Services against the value stated thereon or the right to receive a discount on the price of the Goods or Services. Vouchers do not include postage stamps issued by the Emirates Post Group.”

In addition, Article 28(6) of the UAE VAT Regulations specifies that the monetary value for which a voucher may be redeemed must be identifiable when the voucher is issued.

It’s crucial to highlight that, in accordance with the UAE VAT Law’s Article 1 definition of a voucher, the term “value stated thereon” implies that the monetary worth should be either explicitly mentioned or calculable. This can pose specific challenges, especially when dealing with vouchers such as game cards, in-game credits, specific subscription cards, or particular loyalty programs where the monetary value might not be explicitly indicated. Companies need to take proactive measures to address these challenges and ensure the accurate VAT treatment of such vouchers. 

Beyond the challenges stemming from the monetary value criterion, it’s vital to ascertain whether a specific item meets the criteria to be considered a voucher for VAT purposes, as this classification determines its VAT treatment. As outlined in Article 7(1) of the UAE VAT Law, the sale or issuance of a voucher is not regarded as a supply, meaning it falls outside the scope of VAT, provided the voucher is not sold above its face value. The subsequent redemption of the voucher triggers the VAT tax point.

Hence, it is of utmost importance for businesses to conduct a thorough analysis to determine whether these items satisfy the voucher criteria as stipulated in the VAT regulations. The accurate identification of vouchers plays a pivotal role in guaranteeing precise VAT treatment and adherence to the UAE VAT laws.
N R Doshi and Partners has earned an excellent reputation in VAT Law in UAE because of their services and their determination to provide clients with the best VAT Consultancy services.