Gift cards and vouchers in the UAE: VAT at issue, VAT at redemption, and the breakage question

The rule in one sentence

Under Article 40 of the UAE VAT Decree-Law, selling or issuing a voucher is not itself a supply — VAT happens when the voucher is redeemed, on the goods or services it buys. The one exception: if a voucher is sold for more than its advertised monetary value, VAT is due on the excess at the time of sale.

This is a genuinely different regime from Europe's single-purpose/multi-purpose split — importing that logic into a UAE VAT position is one of the most common errors in advice found online. In the UAE the treatment does not depend on whether the redemption VAT rate is known upfront.

What counts as a voucher

The instrument must give the right to receive goods or services up to a stated monetary value, or a stated discount — a AED 500 gift card, a prepaid dining voucher. Instruments without a face value entitlement, and postage stamps, sit outside the definition. So do points in a loyalty programme, which follow their own analysis.

The three moments that matter

• Issue — no VAT on the sale of the card at or below face value; the cash received is a liability (unearned), not revenue
• Redemption — a normal taxable supply of whatever is bought, at that supply's rate, with the voucher as consideration; the tax invoice is issued for this supply
• Expiry / breakage — no supply ever happened, so no output VAT is due on the unredeemed balance; for accounting, IFRS 15 lets expected breakage be recognised as revenue in proportion to actual redemptions rather than in one lump at expiry

The operational traps

• Booking card sales as revenue at the till — overstates revenue and desynchronises the VAT return from the ledger
• Charging VAT at issue and again at redemption — double tax that a customer or an audit will eventually surface
• Selling vouchers through resellers at a margin without deciding whose supply the margin is
• No voucher liability register — without one, breakage income and the VAT position are both guesses

How Orbit applies this

Orbit posts voucher sales to a voucher liability account, matches redemptions to the liability with the sale document as evidence, tracks the unredeemed balance by expiry cohort, and releases breakage on the documented pattern — so the VAT return and the balance sheet tell the same story.