Output VAT is calculated as a percentage of the taxable value of a supply.
Standard Valuation Rules
The taxable value is normally the total cash consideration paid by the buyer, excluding the VAT itself. It includes:
- All costs, duties, and taxes levied on the supplier by third parties.
- Commission, packaging, and transport costs charged to the customer.
- Any subsidies directly linked to the price of the supply.
Open Market Value (OMV)
When a transaction occurs between related parties (e.g., a parent company and its subsidiary) or involves a non-cash barter trade, the transaction price may be artificially lowered. In these scenarios, the law mandates using the Open Market Value—the price the asset would fetch between entirely independent parties under free market competition.
Deemed Supplies
A deemed supply occurs when business assets are converted to non-business use without a traditional cash sale. VAT must be calculated and paid on the original cost price of the items when:
- A business owner takes stock home for personal use.
- A company gives away taxable inventory as free business gifts to clients.
- Capital equipment is retained upon business deregistration.
Â