Federal Tax Authority (‘FTA’) has issued a basic tax information bulletin addressing specific issues relating to automotive sector from UAE VAT laws perspective. The key takeaways from such bulletin have been mentioned below:
Applicability of VAT on automotive sector:
It has been clarified that the following supplies, amongst others, made by businesses in automotive sector are subject to VAT:
- Sale of new and used cars;
- Sales of car parts;
- Service centers’ services, warranties, and related insurance products.
Further, supplies of qualified means of transport, such as buses that are designed or adapted for public transportation of 10 or more passengers and are actually used for public transportation are subject to VAT at zero-rate.
Profit Margin scheme on sale of used cars:
The bulletin mentions that profit margin scheme may be applied to sale of old cars provided such cars have been subject to UAE VAT on the initial purchase. Further understanding may be sought from Public Clarification on Profit Margin Scheme – VATP002.
Gifts and giveaways:
In instances where goods are given to consumers free of charge, the provisions of ‘Deemed Supply’ may apply.
Repair services and parts provided under warranty:
The captioned matter has been clarified by stating the following instances at which VAT would be applicable:
- Sale of vehicles that include warranty;
- Warranty packages purchased separately by the customer.
Any further supply of services/spare parts that are covered under warranty claims would not attract VAT provided no additional consideration is received against such supplies.
Reclaim of cost of supplies by service center from a manufacturer based outside UAE
The bulletin addresses tax implication in the following scenario:
- A manufacturer based outside UAE sold vehicle along with warranty / warranty package to a customer based in UAE.
- The service center based in UAE physically performs the repair and maintenance services in UAE and recovers cost incurred against such services from the manufacturer located outside UAE.
- The bulletin clarifies that since such repair and maintenance services are physically provided in the UAE in relation to motor vehicles, it is subject to VAT at the standard rate, even if the costs are charged to the manufacturer based outside the UAE.
You may email us or can contact any of our team members relating to your queries on this subject:
This document has been prepared as a general guide. It is not substitute for professional advice. Neither PKF UAE nor its partners or employees accept any responsibility for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document.
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