Passively earned interest income generated from bank deposits, dividend income received by merely holding shares in a company does not constitute consideration for a supply therefore, outside the scope of VAT.
Bank deposits may accrue interest to their holders. The business does not do anything to earn this interest income other than to merely deposit the money in the account, and therefore, it can be said to be earned passively. In this case, the retail business does not make a supply to the bank, and therefore the interest income received is not a consideration for a supply. The business is not required to declare this income on its VAT return, as it is outside the scope of VAT.
The shareholder does not make a supply to receive the dividend; the dividend income cannot be treated as consideration for a supply. Accordingly, dividend income is outside the scope of VAT, and is, therefore, not required to be reported on the VAT return.
| Interest income by depositing money in a bank account or by holding fixed deposits, recurring deposits, or any other similar bank deposit. | Outside the scope of VAT |
| Interest generated from extending loans or credit | Exempt from VAT |
| Management fees charged by a holding company to its subsidiaries | 5% |
| Dividend income by holding shares in a company | Outside the scope of VAT |