When discussing VAT with our clients in the automotive industry we noticed there were some common questions being repeatedly asked. We felt it might be useful to answer some of these commonly asked questions. Understanding this will help avoid penalties, and complying with the tax laws.
If you run a business in the automotive industry, you need to fully comply with the tax regulations in UAE like any other business.
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We have already discussed the VAT registration requirements for a business in our earlier insights, this is no different in the case of the automotive industry. Once registered for VAT, tax invoices must be raised on all the taxable sales, and VAT returns must be filed.
Browse through these FAQ’s created especially for the UAE Automotive Industry:
How to treat repair services provided for vehicles or parts that are under warranty?
VAT is charged at the point of sale of the warranty (either with the original sale of the vehicle or sold additionally later), so subsequent services covered in the warranty no VAT is charged to the end customers.
If vehicle maintenance providers or distributors provide the warranty repair services for vehicle manufacturers outside UAE, is VAT chargeable?
If the vehicle being repaired is within UAE, this service is subject to standard rated VAT even if the costs are being charged to the vehicle manufacturer outside UAE.
Can input VAT be recovered by businesses in the automotive industry?
This may seem to be confusing to some, as VAT may not be recoverable to businesses buying or renting a vehicle. However, the requirements to claim back input VAT in the automotive sector is the same as for any other business. All input VAT can be claimed except for -
- Certain entertainment services.
- Purchased, leased or rented motor vehicles that are available for personal use.
The tax registrant will also not be allowed to claim expenses which are related to exempt supplies. All other VAT related expenses that are made for business purposes are claimable.
How will you treat gifts or free samples?
In general the VAT treatment for gifts and free samples are treated as deemed supplies. Therefore VAT need to be charged and included in the VAT return unless -
– The relevant input tax was not recovered on the related goods;
– The value of supply to each recipient does not exceed AED 500 in a 12-month period; or
– The output tax due for all deemed supplies per person made in the 12-month period is less than AED 2,000.
To avoid making some of the common errors when registering for VAT return click here
VAT in the automotive industry is not as complicated as it seems, just use these FAQs as a guide to know how to treat these special transactions. You still have access to our insights page for more clarity.
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