Can the supplier refuse to pay the VAT on a referral fee invoice and ask me to bear it?

If you are registered for VAT, you are required to charge VAT on the referral fee and issue a tax invoice to the supplier.

Badr Legal Consultants

Dear Questioner,

Thanks for your inquiry.

In your situation regarding the VAT on a referral fee, here's a breakdown of the legal considerations under UAE law:

1. VAT Responsibility

VAT Applicability: In the UAE, as per the Federal Tax Authority (FTA) regulations, VAT at 5% is applicable to all taxable supplies, including services such as referral fees, provided by VAT-registered businesses.

Your Obligation: If you are VAT-registered, you are legally required to charge VAT on the referral fee and issue a valid tax invoice.

2. Supplier’s Request

Deducting VAT from the Fee: The supplier’s suggestion to deduct VAT from your 10% fee essentially means you would bear the VAT cost instead of passing it on to them. While this is not illegal, it would reduce your net earnings, as you would only retain 10% minus the VAT.

Legal Compliance: The supplier cannot refuse to pay VAT if you are VAT-registered and have issued a valid tax invoice. Their request to exclude VAT from their payment might stem from a misunderstanding or their desire to avoid paying more than the agreed referral fee.

3. Recommended Actions

Clarify VAT Requirements:

Explain to the supplier that VAT is a legal obligation and must be paid in addition to the referral fee.

Inform them that refusing to pay VAT could put both parties at risk of non-compliance with UAE tax laws.

Negotiate Terms:

If the supplier insists on deducting the VAT from your 10%, consider if you are willing to accept a lower fee (effectively absorbing the VAT yourself).

Alternatively, renegotiate the agreement to clarify that VAT is over and above the 10% referral fee.

Ensure Proper Documentation:

Retain records of the agreement and invoices to support your case in case of a dispute.

If necessary, consult with a tax advisor to ensure compliance with FTA regulations.

4. Key Points

Charging VAT is mandatory for VAT-registered businesses.

The supplier's refusal to pay VAT on top of the referral fee is not in line with UAE VAT laws.

You can either stand firm on your invoice or absorb the VAT, depending on your business priorities.

Kindly do not hesitate to reach out to us by phone or email for further guidance.

Greetings

Welcome.

The supplier's request to deduct VAT from your 10% commission is not legal.

In the UAE, VAT-registered companies are required to charge VAT separately from the amount due to you.

You should issue a tax invoice with VAT listed separately from your commission.

For specialized legal advice on this matter, feel free to contact us for professional assistance.

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No, the supplier's request is not legal.

In the UAE, Value Added Tax (VAT) is a consumption tax levied on most goods and services. As a VAT-registered entity, you are obligated to charge VAT on all taxable supplies, including the referral fee you've earned.

The supplier is responsible for paying VAT on their sales to the end client. Your referral fee is considered a separate taxable supply, and you are required to charge and remit VAT on it.

If you need further clarification you may ask.