VAT on Discounted price in UAE

How to treat VAT on Discounted price in UAE?

Since the implementation of VAT in UAE, businesses are confused about the treatment of VAT on Discounted price in UAE. Strategy of discount is not new for the businesses but how to calculate VAT on discounted invoice in new for them.
Discount is actually a reduction in the original price. Businesses use the sales strategy of discount in order to attract and get more customers to increase their sales. It is one of the oldest selling strategy in order to convince the customer to buy more.
The most common question is that whether the VAT will be charged on the actual price or the discounted price of the product or services.
The answer is that the VAT will be charged on the discounted price of the product or services.
As per the UAE VAT Executive regulation, following are the conditions which must fulfil in order to give a discounted price:
1. Customer must get the benefit from the price reduction.
2. Supplier funded the discount.
How is VAT calculated when there is a promotional campaign and/or during sales/discounts?
In case of discounts on the regular sale price or reduction of prices during seasonal promotions or for campaigns such as ‘Buy 1, Get 1 free,’ VAT will be applicable and included in the discounted price and not the original price.
As per the law of Federal Tax Authority (FTA), VAT of 5% will be calculated on the discounted price of the product or services.

For Example

• Value of the Product is AED 100
• Discount is 10%, i.e AED 10

Before Discount

• Product Price: AED 100
• VAT @ 5%: AED 5
• Total Price: AED 105

After Discount

• Product Price: AED 100
• Discount @ 10%: AED 10
• Price after Sale: AED 90
• VAT @ 5%: AED 4.5
• Total Price: AED 94.5