The UAE’s Federal Tax Authority (FTA) recently published an automotive sector guide
. One key aspect that is highlighted in the guide is the VAT treatment of warranties and warranty claims. As in Bahrain and Saudi Arabia, the FTA has clarified that no separate supply of warranty takes place, on the taxable sale of a ‘warrantied’ vehicle, and no additional VAT is chargeable to the vehicle purchaser on the performance of repair services under the warranty. Extended warranties provided by suppliers separately are taxable at the standard VAT rate (as long as the supplier is VAT-registered), as a separate supply of services. Input tax incurred in the course of performing warranty repairs is recoverable, as it relates to making taxable supplies – either of taxable vehicles with warranty, or of extended warranties.
Interestingly, the FTA has clarified that reimbursement of repair costs by overseas manufacturers to UAE-based distributors carrying out warranty repairs are VAT-able at 5%. In the FTA’s view – the payment is consideration for a supply of services made to the overseas principal, in connection to goods situated in the UAE, which attracts the standard rate of VAT. This contrasts with guidance in Bahrain where the NBR has clarified
that reimbursements (without any margin) when made to a Bahraini dealer from an overseas manufacturer are outside the scope of VAT. In Bahrain, only the margin (if any) is taxable (as the repairs are related to tangible goods located in Bahrain). In Saudi Arabia, ZATCA has not yet provided detailed VAT guidelines on warranties. While certain aspects of warranty services were covered in the VAT retail industry guide (in Arabic)
, there has been no clarification regarding the treatment of recoveries from manufacturers.
If you have any questions in relation to warranty claims and their treatment, please contact our Keypoint tax team.