VAT Public Clarification VATP042 - Value of supply - Barter Transactions​

In detail​

A barter transaction always involves at least two supplies (where each party makes a supply to the other) and non-monetary consideration. ​

Each supplier in a barter supply shall first assess the VAT treatment of the supply they are providing. The new Public Clarification confirms that a supply within a barter transaction can be:​

• A taxable supply subject to VAT at the standard rate of 5%. ​
• A taxable supply subject to VAT at the zero rate provided 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.

The Public Clarification further sets out the principles for valuation of non-monetary consideration in a barter transaction. In general, where non-monetary consideration is provided for a supply, the value of that 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. ​

To determine the market value of the nonmonetary part of the consideration, the following principles apply: ​

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 for an arm's length transaction, a supply willingly and freely made  between persons who are not connected in any manner.​
2. If the market value of a same supply is not available, the market value is the monetary consideration which a similar supply would achieve if supplied in similar circumstances at that date in the UAE for an arm's length transaction.​
3. Where the market value of a same or similar supply is not available, the market value shall be determined by reference to the replacement cost of identical goods or services in an arm's length transaction.​

The above rules for valuation of supplies must be applied by both parties in a barter transaction.Where the supplies involved in a barter transaction are taxable supplies, other compliance requirements such as issuing tax invoices must be followed.