UAE prescribes VAT valuation method for deemed service supplies

Only input-tax-bearing costs enter the calculation

Directive 5 begins from the direct and indirect costs incurred to provide the deemed service, but includes only costs on which input tax was incurred. It applies a staged calculation intended to identify the cost attributable to the deemed supply. The resulting amount is treated as the supply value for Article 37 of Federal Decree-Law 8 of 2017, which values a deemed supply at the total cost incurred by the taxable person.^[1][2]

Open-market value is stripped of its profit element

The taxable person first determines an open-market value for the service by reference to comparable services supplied in similar circumstances. The directive then removes the profit component by dividing that value by one plus the taxable person’s net profit margin for the preceding tax period. If that margin cannot be determined, the average net profit margin for the relevant sector may be used instead.^[1]

A cost ratio narrows the Article 37 amount

The person must calculate the proportion of prior-year total costs on which input tax was incurred, using direct and indirect costs associated with making supplies. That ratio is applied to the profit-adjusted open-market value to produce the deemed-supply amount. The method therefore requires evidence for the comparables, profit margin and input-tax-bearing cost pool; using gross expenditure without the directive’s filters would not follow the prescribed calculation.^[1][2]

Finance and tax teams need a reproducible audit trail

Groups with free or non-business service uses that can trigger deemed-supply treatment should document the comparable-services analysis, the selected profit margin and the cost-ratio computation in the same file as the VAT return. The directive was issued on 20 July 2026 and the FTA register records publication on 22 July. It requires Official Gazette publication but gives no separate commencement date, so no effective date should be assumed.^[1][4][3]