A VAT registered person may earn interest income by depositing money in a bank account or by holding fixed deposits, recurring deposits, or any other similar bank deposit. In addition, a VAT registered person may earn dividend income by holding shares in a company.
This Public Clarification discusses the VAT implications of the interest income generated from bank deposits and dividend income.
Passively earned interest income generated from bank deposits does not amount to consideration for a supply. Similarly, dividend income received by merely holding shares in a company does not constitute consideration for a supply.
Passively earned interest income from bank deposits and dividend income are, therefore, outside the scope of VAT, and there is no requirement to report them in the VAT return.
Value Added Tax (‘VAT’) is a tax imposed on the import and supply of goods and services at each stage of production and distribution, including deemed supplies.
“Supply” is the foundation of VAT, and therefore, VAT implications arise only when there is a supply. In other words, if ther...