VAT q&a: ‘Can a nail salon add tax to its advertised prices?’

The Dubai resident received a 10 per cent discount, only to have 5 per cent VAT added at the till

The Federal Tax Authority's default position is that advertised prices must include VAT. Photo: Getty Images

I recently went to a salon that I saw advertised on a Facebook group. A manicure and pedicure cost Dh140, with polish removal for Dh20, so Dh160 in total. They were offering an additional 10 per cent discount to all group members, so total cost should have been Dh144.

At the till, they added 5 per cent VAT on top of the agreed price.  I questioned it because my understanding is that VAT should be included in the listed price. The manager explained that when registering a business for VAT there is an option to include VAT in the price or add on top, but she had just forgotten to write "VAT not included" on her leaflets. What is the correct practice? She did not print a receipt, but said she'd email it to me, for which I'm still waiting. CD Dubai

You are correct that VAT should be included in the advertised prices for a nail salon business. The relevant legislation is included in Article 38 of the Decree Law and Article 27 of the Executive Regulations. The Federal Tax Authority's default position is that advertised prices must include VAT.  There are a couple of exceptions to this base rule which are outlined in the Executive Regulations. These are when the supply of goods or services are for export and when the customer is VAT-registered.

What this means is that VAT must always be included in the advertised pricing for all consumer businesses. The manager's comments referring to individual businesses being able to determine themselves whether their pricing is inclusive or exclusive of VAT is incorrect.

You state that you are waiting for a receipt. When that arrives, it must include the following to comply with the Executive Regulations Article 59 for a simplified tax invoice: the words “tax invoice” clearly displayed on the invoice, the name, address, and Tax Registration Number (TRN) of the supplier, the date of issue of the invoice, a description of the services supplied, the total cost and the VAT charged.

My company is not VAT-registered as my turnover is less than Dh375,000 per year. However, recently I supplied a company and they are paying me VAT as well with my payment. I understand that taking a payment and not paying VAT is illegal. How do I make a payment without being registered with the FTA? MBS RAK

I can see from your company website that you supply equipment to the hotel sector, so from this I assume your customers are typically VAT-registered. It is difficult to see how this situation has arisen. As a non-VAT registered supplier, you should have issued them a quote first of all and then a final invoice that does not include or even mention VAT. If they have added VAT to your payment on top of your invoice, you should treat this as an overpayment of your invoice and let them know. You can either repay it to them or keep it on their account for use against a future invoice.

If they have exactly paid your invoice and informed you that the amount includes VAT, or more likely issued you a receipt showing VAT, then this is again an error on their part. I advise writing to them reiterating that you are below the mandatory VAT registration threshold and your invoice does not include any VAT.

An error on their part does not mean that you have to now register for VAT or submit their overpayment to the FTA. Indeed, there is no mechanism for submitting a VAT return and paying over VAT unless you are registered.

You are correct that charging and receiving VAT and then not paying that over to the FTA is illegal, but that does not seem to be the case here. I suggest you keep copies of all email correspondence with them in case you are subjected to a later VAT audit.

Lisa Martin, a chartered accountant with more than 20 years of commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to [e-mail]