Time of Supply Explained related to VAT in UAE

Posted on Nov 18, 2017

Time of Supply Explained related to VAT in UAE

The time at which a supply of goods or services is deemed to take place is called the tax point (Time of Supply). VAT must normally be accounted for in the VAT period in which the tax point occurs and at the rate of VAT in force at that time. Small businesses may, however, account for VAT on the basis of cash paid and received.

Although the principal purpose of the time of supply rules is to fix the time for accounting for and claiming VAT, the rules have other uses including

  1. calculating turnover for VAT registration purposes
  2. establishing the period to which supplies (including exempt supplies) are to be allocated for partial exemption purposes, and
  3. establishing when and if input tax may be deducted

Tax point planning can be very important to a business. the aims in summary are:

  • Deferring a supplier’s tax point where possible
  • Timing of a tax point to benefit both parties to a transaction wherever possible
  • Applying the cash accounting scheme (or withdrawal from it)
  • Using specific documentation to avoid creating tax points for certain supplies
  • Correctly identifying the nature of a supply to benefit from certain tax point rules
  • Generating positive cash flow between “related” entities where permitted
  • Broadly; generate output tax as early as possible in a VAT period, and incur input tax as late as possible
  • Planning for VAT rate changes
  • Ensure that a business does not incur penalties for errors by applying the tax point rules correctly.

Getting a tax point wrong by even one day can be very costly. This is particularly relevant in respect of property transactions. Also, a significant savings may be made by careful tax point planning.

Importance of time of supply:

  • The tax point helps in determining what VAT period the transaction falls under. 
  • It is crucial as it will directly impact the cash flow
  • The company can optimize its VAT return if planned and implemented properly.

Special rules:

Call off Stock and consignment stock are the two special cases related to the Tax Point.

  • Determining the time of supply might get confusing in these cases more so when it is a cross-border supply.
  • VAT here is due at the earlier of receipt of payment, date of an invoice or if the stock has been on the premises for more than 12 months.
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