On 28th April 2025, Federal Tax Authority (FTA) have issued VAT public clarification (TAXP042) on value of supply under Barter Transactions Barter Transactions: Taxable persons receive monetary consideration for the supplies they make but consideration may also be received in the form of goods or services, i.e. non-monetary consideration. Transactions which involve the exchange of goods and/or services, are known as barter transactions. Barter transactions involve at least two supplies, i.e. each party makes a supply to the other. Such supplies are subject to the general VAT rules, nevertheless, special valuation rules apply Public clarification TAXP042: Underlying clarification explains the principles to determine the value of supply for the non-monetary part of the consideration. The following principles apply 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, being a supply freely made between persons who are not connected in any manner Where the market value could not be determined as per principle 1 above, the market value is the monetary consideration which a similar supply would achieve if supplied in similar circumstances at that date in the UAE, being a supply freely offered and made between persons who are not connected in any manner. Where the market value could not be determined as per principles 1 and 2 above, the market value shall be determined by reference to the replacement cost of identical goods or services, with such supply being offered by a supplier who is not connected to the recipient of goods or recipient of services in any manner Example: A consulting firm and IT firm, which are registrants, enter into a barter agreement, as per the following: IT firm will provide software’s like ERP, HR worth AED 35,000 Consulting firm will provide auditing services worth AED 15,000 and Balance AED 20,000 in cash VAT Treatment In the above example, IT firm should raise Tax invoice for AED 35,000 inclusive of VAT to consulting firm Consulting firm should raise Tax invoice for AED 15,000 inclusive of VAT to IT firm Key take aways: VAT treatment/Law implication should be done for each leg of the transaction Taxable person should not net off the transactions i.e as mentioned in the example IT firm should not raise invoice for AED 20,000 (inclusive of VAT) net off the services received from consulting firm Both the parties in the barter transaction should raise tax invoice for the services/goods provided by them to each other. Value of a supply needs to be as per the principle mentioned in the public clarification Click here to read the official announcement
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