The Federal Tax Authority (FTA) on Sunday issued a clarification about the imposition of VAT on compensation type payments, saying those payments will not be subject to five per cent tax if the payment does not relate to a supply of goods or services. The authority noted that as part of business agreements, businesses usually make payments to compensate each other for any loss, negligence or other errors. VAT should not be applied to such amounts if they do not relate to a supply. However, this does not include any payments which are made towards cessation of rights for supply of services or goods, therefore would fall under the scope of UAE VAT Law. A typical example of this is where a hotel charges cancellation fee. For more details  visit:                                                                                                                      taxconsultantsdubai.ae                                                                                                                    or                                                                                                                                 contact  : +971-558876440