Single Composite Supply Under UAE VAT

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The concept of “single composite supply” is a critical aspect of the UAE's Value Added Tax (VAT) framework. It refers to a supply that includes two or more components—goods, services, or a combination of both—that are naturally bundled and supplied together. 

This article examines the concept of single composite supply under UAE VAT in light of the recent clarifications issued by the FTA. 

Single Composite Supply

Under UAE VAT regulations, a single composite supply occurs when multiple components are supplied together as part of a single transaction. These components are closely linked, with one being the principal supply and the others incidental or necessary for the enjoyment of the principal supply. For instance, an international business-class flight ticket that includes lounge access is treated as a single composite supply, with the flight being the principal component.

Recent Clarifications 

Recent clarifications to Article 4(4) of the Cabinet Decision No. 52 of 2017 (Executive Regulation) under UAE VAT have introduced greater clarity on the criteria for a single composite supply. As per the updated provisions, for a transaction to qualify as a single composite supply, two conditions must be satisfied. First, all components must be provided by a single supplier. Second, the price of the components should not be separately identified or charged.

This clarification emphasizes that even when a supply aligns with the general meaning outlined in Article 4(3) of the Executive Regulation, it will not be treated as a single composite supply unless it meets the explicit requirements of Article 4(4).

A notable point in the clarification is the treatment of subcontracted components. If a supplier subcontracts certain elements of the supply to a third party but remains contractually responsible to the recipient, the supplier is still deemed to have supplied all the components. Consequently, the condition requiring all components to be supplied by a single supplier is satisfied.

The distinction between single composite and multiple supplies also hinges on pricing. A single price for all components does not automatically render the transaction a single composite supply. For instance, if a tax invoice, quote, or contract identifies the price for each component separately, the supply will not qualify as a single composite supply. An example of this would be a marketing campaign billed under one fee, but with separate prices listed for venue rental, catering, and promotional items. Similarly, the sale of a mobile phone with a single price but itemized charges for the phone, maintenance, and warranty would also not constitute a single composite supply.

Furthermore, a new addition to Article 46(1) provides clarity on tax treatment when a single composite supply lacks a principal component. In such cases, the VAT treatment is determined based on the general nature of the supply as a whole.

Conclusion

The nature of goods and services supplied as a “single composite supply” often changes based on market dynamics, demand forecasting or any other reason. Businesses making such supplies must consult their advisors while curating and introducing such supplies. 

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