UAE VAT Public Clarification (VATP042): Value of Supply - Barter Transactions

The UAE Federal Tax Authority (FTA) has issued VAT Public Clarification (VATP042) to provide guidance on the treatment of barter transactions under UAE VAT law. This clarification helps businesses understand how to determine the value of supply and VAT obligations when goods or services are exchanged without monetary consideration.

What Is a Barter Transaction?

Barter refers to the exchange of goods or services without the use of money. Both parties trade goods and services of equivalent perceived value, demonstrating how barter can still function effectively in today’s economy.

A Modern Example

Consider a freelance designer who creates a logo for a bakery in exchange for a month’s supply of pastries. No money changes hands, yet both parties receive something of value. This exchange is considered a taxable supply for both parties under UAE VAT regulations.

The key principle here is that VAT applies even if no cash is exchanged, as long as there is a supply of goods or services made for consideration.

How VAT Applies to Barter Transactions

1. Taxable Supplies

Each party involved in a barter deal is making a supply. These are treated as separate taxable events, and both parties must account for VAT according to the standard rules.

2. Valuation Rules

Each supply must be valued based on the market value of what is received, exclusive of VAT. This ensures consistency and fairness in tax reporting.

3. VAT Rates

The applicable VAT rate depends on the nature of the goods or services supplied:

• Standard-rated (5%)
• Zero-rated (0%)
• Exempt
• Outside the scope of VAT

Each party must evaluate the nature of their supply to determine the appropriate VAT treatment.

Mixed Consideration Scenarios

In some cases, a supply may involve both monetary and non-monetary consideration. VAT must then be calculated on the total value of the transaction.

Example:

A social media influencer promotes a restaurant and is compensated with:

• AED 900 in cash
• A meal worth AED 100 (VAT-inclusive)
• Total consideration = AED 1,000
• VAT due by the influencer = AED 47.62 (1,000 × 5/105)
• VAT due by the restaurant for the meal = AED 4.76 (100 × 5/105)

This example underscores the importance of proper valuation and reporting in mixed transactions.

Key Actions for Businesses

Businesses engaging in barter arrangements should take proactive steps to ensure VAT compliance:

• Assess VAT obligations for each supply independently, even if part of a barter deal.
• Review and update any ongoing barter arrangements to align with VATP042.
• Ensure proper documentation of market values for transparency and audit readiness.

Conclusion

Barter transactions are not exempt from VAT in the UAE. Under VATP042, businesses must treat each supply involved in such arrangements as a taxable event, value it at market rate, and apply the correct VAT treatment. Understanding and implementing this guidance is essential for compliance and avoiding potential penalties.

For further assistance or clarification on your specific barter arrangements, reach out to Andersen UAE’s team.