VAT Treatment

The VAT treatment of a barter transaction is the same as that of a supply made for monetary consideration.

For VAT purposes, the differences between a barter and non-barter transaction are that a barter transaction includes at least two supplies (i.e. each party makes at least one supply to the other party), and special valuation rules apply.

Each party within a barter transaction must evaluate the VAT treatment of the goods or services they are providing. A supply within a barter transaction can be:

• A taxable supply^[1] subject to VAT at the standard rate of 5%.

• A taxable supply subject to VAT at the zero-rate if all the relevant requirements for zero-rating are met.

• A supply exempt from VAT if all the relevant requirements for exemption are met.

• A supply outside the scope of UAE VAT, e.g. if the place of supply is outside the UAE.

Valuation of the supply

To the extent the consideration for a supply is monetary, such supply is not a barter transaction.

To the extent the consideration is non-monetary, the transaction constitutes a barter transaction, and the value of the supply is the sum of any monetary consideration received for the supply and the market value of the non-monetary part of the consideration, excluding the tax amount.^[2]

To determine the market value of the non-monetary part of the consideration, the following principles apply:^[3]

1. The market value of a supply of goods or services is the monetary consideration the supply would generally achieve if supplied in similar circumstances at that date in the UAE, being a supply freely made between persons who are not connected in any manner.

   For example, a VAT-registered social media influencer supplies marketing services with a market value of AED 1,000 (inclusive of VAT) to a restaurant in the UAE in exchange for AED 900 and a meal valued at AED 100 (inclusive of VAT) from the restaurant.

   The total consideration received by the social media influencer is AED 1,000 for the supply of marketing services, and this supply is subject to VAT at the standard rate of 5%. This is on the basis that the social media influencer received AED 900 as monetary consideration and non-monetary consideration (i.e. meal) of AED 100.

   The social media influencer is required to account for VAT on the value of his/her supply i.e. AED 47.62 (1000 x 5/105), as the AED 1,000 is considered to be inclusive of VAT.

   Since the restaurant provides a meal for AED 100 to the social media influencer, the restaurant is required to account for VAT in respect thereof, i.e. AED 4.76 VAT (100 x 5/105).

2. Where the market value could not be determined as per principle 1 above, the market value is the monetary consideration which a similar supply would achieve if supplied in similar circumstances at that date in the UAE, being a supply freely offered and made between persons who are not connected in any manner.

   For example, if a farmer supplied seeds to another farmer in exchange for tomato crop, and this type of tomato is not sold in the market, but other farmers sell similar crops for another tomato variant which is commonly used to substitute the tomatoes forming the crop that are part of the barter transaction for AED 50,000 to unrelated customers in the UAE on that date, the market value of the supply will be AED 50,000.

3. Where the market value could not be determined as per principles 1 and 2 above, the market value shall be determined by reference to the replacement cost of identical goods or services, with such supply being offered by a supplier who is not connected to the recipient of goods or recipient of services in any manner.

The above rules for valuation of supplies must be applied by both parties to the supplies they make as part of a barter transaction.

Tax invoices

Registrants^[1] making taxable supplies are required to issue a tax invoice and deliver it to the recipient of the goods or services.^[4] The same rule applies in the case of taxable supplies made under a barter agreement.

This means that, where both parties to a barter transaction make taxable supplies to each other and both are registrants, each party must issue a tax invoice to the other party.

For example, an accounting firm and a furniture dealer, which are registrants, enter into a barter agreement, as per the following:

The furniture dealer agrees to transfer the ownership of new office furniture for AED 45,000 (inclusive of VAT) to the accounting firm.

The accounting firm will pay as follows for the furniture:

• Accounting services for AED 15,000 (inclusive of VAT), and

• AED 30,000 cash.

In such case, the tax invoice requirements for each party shall be as follows:

• The furniture dealer shall account for VAT on the supply of furniture and issue and deliver a tax invoice to the accounting firm which should include the following:

  • Value of supply (net amount) of AED 42,857.14 (45,000 x 100/105)

  • 5% VAT of AED 2,142.86 (45,000 x 5/105)

  • Consideration (gross amount) of AED 45,000.

• The accounting firm shall account for VAT on the supply of accounting services, issue and deliver a tax invoice to the furniture dealer which should include the following:

  • Value of supply (net amount) of AED 14,285.71 (15,000 x 100/105)

  • 5% VAT of AED 714.29 (15,000 x 5/105)

  • Consideration (gross amount) of AED 15,000.