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Structuring and Advisory support on Taxability of Loyalty points

Sector: Retail

Facts & Analysis:

The Company is one of the leading retailers located in Dubai, UAE and has various outlets in GCC. The Company has decent online presence as well.

The Company runs certain sales promotional schemes in the form of Loyalty points, Vouchers etc. as a marketing strategy.

In retail sector, several Companies, outlets, hotel chains etc. run customer loyalty point schemes where the customer is being given incentives by way of earning points upon buying goods or services from the taxable person. Said points earned by the customer can be further utilized/ redeemed for future procurements of goods or services or receiving discounts from said taxable person.   

We were hired toprovide our advisory support on VAT implications as may be applicable on loyalty points given by the Company to the customers which is considered as one of the most complex and debatable issue currently for the retail sector.

Our major role in the entire project was to provide detailed opinion with respect to said transaction within stipulated timeframe since the number of similar transactions undertaken by the Company being done on daily basis was quite high and amount involved was also substantial.

Given that the issue was quite complex and needed deep understanding of the mechanism adopted by the Company, so as to clearly understand how exactly the transaction was being undertaken in detail, we had multiple discussions with Finance and Business teams involved in said process for better understanding of facts and analysing the transaction mechanics of the scheme.

We took cognizance of the fact that the Company is giving loyalty points as free of cost to the customers with certain conditions including issuance of vouchers as another scheme variation.

Basis our technical evaluation and experience of dealing in retail and hospitality sector in past,  we apprised the client about the difference in interpretation of similar provisions in other GCC countries namely KSA and Bahrain and implement a scheme that is tax compliant and also with minimal / no tax leakage. Basis our detailed and wholistic opinion on such complex issue, client was able to execute various documents, assign terms and conditions to scheme etc. at the same time be completely VAT compliant.

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