Deemed Supply UAE VAT: What You Give Away Free Still Carries VAT, and the FTA's New Method for Services

You hand a client a gift at the end of a project. You send out free samples. Your team does a job for nothing. None of it earned you a dirham, so it feels odd that VAT could be due. Under the deemed supply UAE VAT rules, it can be. The law treats some things you give away, or use privately, as if you had sold them. You then owe 5 percent on a value you never charged.

Goods were always easy to value. Services were not, because a free job has no invoice. On 20 July 2026 the Federal Tax Authority (FTA) closed that gap. This guide covers both halves, the two small-value tests most guides mix up, and a worked example.

In a country people move to because it is tax-light, the tax you are most likely to get wrong is the one on things you did not charge for.

All of this applies only if your business is registered for VAT. If you are not sure whether you have to be, start with our guide on who has to register for VAT in the UAE.

Deemed supply UAE VAT rules: the four cases in the law

Article 11 of the VAT Decree-Law (Federal Decree-Law No. 8 of 2017, published with its amendments on the FTA's VAT legislation page) names four cases:

1. Business goods or services given away without payment.
2. Goods moved between the UAE and another GCC country that applies VAT, with some exceptions for temporary moves.
3. Goods or services you could reclaim VAT on, used for non-business purposes. Only the private share counts.
4. Goods and services you still own on the day your VAT registration is cancelled.

In daily business: free samples, client gifts, a company laptop taken home for good, staff time used for the owner's private work, and stock still on hand when you deregister.

Article 12 then lists five exceptions. The one founders miss comes first: if no input tax was recovered on the item, there is no deemed supply. The rule exists to take back VAT you reclaimed. If you did reclaim it, the normal case described in our guide to reclaiming input VAT in the UAE, read on. The other exceptions are exempt supplies, items adjusted under the Capital Assets Scheme, and the two small-value tests below.

Is a business gift a taxable supply in the UAE?

Sometimes. A gift of goods is a deemed supply only if you reclaimed VAT on it and it fails both small-value tests. So VAT on business gifts turns on two tests. They are different, and treating them as one limit is the most common mistake on this topic.

Test 1: AED 500 per recipient, goods only

The first test covers samples and commercial gifts of goods. It is not a deemed supply if the value of goods given to each recipient within 12 months does not exceed AED 500. That figure is in Article 5(1) of the VAT Executive Regulation, read with Article 12(4) of the Decree-Law.

It measures the value of the goods, counted per person you give to, and never applies to services. Some guides state AED 200. The regulation says AED 500.

Test 2: AED 2,000 of output tax per supplier, everything

The second test covers all your deemed supplies together: goods and services, gifts and private use alike. It is set at AED 2,000 of output tax for each supplier within 12 months, in Article 5(2)(a) of the same regulation, read with Article 12(5).

This one measures tax, not value, counted per business. At 5 percent, AED 2,000 of tax is about AED 40,000 of value. The Decree-Law says a supply is not deemed while the total is below this amount. The regulation adds that any amount above the threshold is payable tax. How that sentence applies to your own figures is a question for your tax agent.

Where both the supplier and the recipient are a Government Entity or a Charity, the limit is AED 250,000 (Article 5(2)(b)). The 12 months run back from the end of the month of the supply, so it is a rolling window.

Why mixing them up costs money

Say you send 30 clients a hamper worth AED 450 each. Every hamper passes test 1, because no single recipient gets more than AED 500. None is a deemed supply.

Now give one key client a watch that cost AED 1,200. That gift fails test 1 for that person. It moves to test 2, where it adds AED 60 of tax (5 percent of AED 1,200) to your 12-month total. If nothing else is on the list, you are still under AED 2,000. A page that treats "AED 500" and "AED 2,000" as one limit gives you the wrong answer on both gifts.

Goods: the half that was always answerable

Article 37 of the Decree-Law says the value of a deemed supply "will be equal to the total cost incurred by the Taxable Person to make this Deemed Supply of Goods or Services."

For something you bought, that is usually the price before VAT on the purchase invoice. Say the owner takes home for good a company laptop that cost AED 6,000, with the VAT reclaimed. The deemed supply is worth AED 6,000 and the VAT is AED 300. That AED 300 also counts toward the AED 2,000 total from test 2.

How much VAT do you actually owe on a free service?

Article 37 says "total cost" for services too. But what does an afternoon of your consultant's time cost? Until July 2026, the deemed supply UAE VAT rules gave no method for this, and every business had to invent its own answer.

Directive No. 5 of 2026, on the Method to Determine the Value of Deemed Supplies of Services, gave the answer. It was issued on 20 July 2026, according to its own signature block, and published on the FTA's listing on 22 July 2026. You can read the three-page Directive on tax.gov.ae.

Three facts matter:

• It covers services only. The title says so and clause 1 repeats it. Gifts, samples, laptops and stock are goods, outside it.
• It does not change the law. It sets a method for applying Article 37, which has been in force since 2018.
• It prints no numbers. The Directive contains no worked example and no AED figures, whatever some adviser notes say. Every worked example online, including ours, is somebody's illustration.

Clause 1 sets the rule: the value is based on "the total costs on which Input Tax was incurred (direct and indirect costs) to make that Deemed Supply". In plain words, you count only the costs that carried VAT.

The four steps in Directive No. 5

1. Find the open market value of the services you gave away. If there is none, use the open market value of comparable services.
2. Take out the profit. Divide the open market value by (1 + your net profit margin). The margin comes from your financial statements for the preceding financial year. If you cannot work it out, you may use the average net profit margin in your sector.
3. Work out your VAT-bearing cost share. This is the percentage of last year's total costs on which you paid input tax.
4. Apply that share to the estimated cost from step 2. The result is the value of the deemed supply of services.

VAT is then 5 percent of that value. The standard rate has applied since 1 January 2018, as the Ministry of Finance confirms on its VAT page.

Step 3 matters for service firms. Salaries carry no VAT, so a business whose main cost is people gets a low share and a deemed value well below its price list.

Our worked example (not the FTA's)

This example is ours. The figures are invented to show the method; the Directive contains none.

A VAT-registered design studio builds a free website for the founder's brother's company. This is not business work, so it is a deemed supply of services. A similar site would sell for about AED 30,000. Last year the studio's net profit margin was 20 percent, and 40 percent of its costs carried VAT, because most of its spending was salaries.

The deemed value is a third of the price list. The AED 500 of tax goes into the test 2 total, which stays under AED 2,000 if this is the only deemed supply in the 12 months. Test 1 does not apply here: it only covers goods.

Deemed supply, reverse charge, or ordinary sale?

The other transaction founders do not expect to be taxed is the UAE reverse charge on imported services. This table sets the four side by side.

Getting it onto your VAT return

Most deemed supply UAE VAT mistakes are record-keeping mistakes, so the practical work is a simple log. For every gift, sample, private use or free job, record the date, recipient, value, whether you reclaimed VAT, and which test applies. Keep a running 12-month total of the tax.

VAT on business gifts, private use and free jobs is reported the same way: a taxable deemed supply goes on the return for its period, alongside your standard-rated sales. Our guide to filing your UAE VAT return walks through the EmaraTax form. If you deregister, do the same for everything you still own on that date.

This article is general information. A registered tax agent should apply it to your own facts before you file.