A gift or a promotional supply only arises where no consideration is received for it by the supplier. However, if there is a requirement for the customer to pay a consideration in connection with the receipt of goods, even if the supplier describes part of that good as a "gift", or as being "free", (for example "buy one, get one free"), it does not come within the terms of a gift or a promotional item for VAT purposes. Where there is consideration it is always referable to all the items supplied and VAT is applicable at the standard rate of 12.5%.
Industrial samples given as gift or as promotional items, in reasonable quantity, to an actual or potential customer in a form not ordinarily available for sale to the public is not subject to VAT regardless of the value of the goods. These samples must be easily distinguished from the actual products that are available for sale in the market. They should be marked with words such as "Not for sale" or "Sample only”.
If the samples given for free do not fulfill the above condition, a supply is treated as being made to the recipient and the supplier may need to account for output tax on these goods given away for free.
Certain goods given free of charge for business use to trade customers may continue to be supplied as promotional items, for example glasses or beer mats, bearing the brand name supplied to a hotel or promotional display stands supplied to a retailer.
Similar treatment also applies to replacement goods supplied free of charge in accordance with warranties or guarantees on original goods that is, it’s not subject to VAT.
As advised previously registered persons should contact the VAT Office if not sure about the VAT implication on a supply in particular when determining whether the supply is to be treated as a deemed supply.
The VAT Office will continue to apply the law and impose the maximum allowable penalties and will reassess the VAT returns accordingly. If warranted prosecution actions will be taken against those who engage in the FOC Scheme with intention to defraud the State.
For more information on any VAT issues, please contact the VAT Office by phone: 00(678) 24573 and 00(678) 37517 (Santo), visit us at our Office in Carnot Street, Port Vila or email us at
