List of business expenses on which input VAT is blocked
Every service has particular typical business expenses which are incurred on a day to day basis. With the intro of VAT in UAE, certain kinds of costs are such that input tax recovery is not allowed on them. It is important for companies to acknowledge this typical overhead and ensure that input tax is not recuperated on these. In this article, let us understand this typical overhead on which input VAT recovery is not permitted under VAT in UAE.
The costs on which input VAT healing is blocked can be categorized into 3 broad classifications:
a. Home entertainment expenses
b. The automobile used for individual purposes
c. Worker associated expenditures
Let us understand these in detail.
Home entertainment expenditures
Organizations signed up under VAT are not allowed to recover input tax on expenses sustained for offering home entertainment to anyone not used by the organization, consisting of clients, potential clients, officials, investors, owners, and investors in the business.
The type of home entertainment expenditures which are not allowed for input VAT recovery includes hospitality (For example Accommodation, food, and drinks) which are not supplied in the normal course of a meeting, access to shows or occasions, or trips offered the functions of pleasure or home entertainment.
When an organization sustains any such expenditure, it will not be able to recover the VAT incurred on these costs.
Motor vehicles utilized for personal purposes
Normally, a person signed up under VAT is enabled to recover VAT sustained on the purchase, lease or rental of an automobile which is used for their organization activities. However, where the automobile is offered for the personal use of any person in business, the registrant will lose the right to recover the VAT sustained on the purchase, lease or rental of the automobile.
Here, a ‘motor vehicle’ is any road automobile which is created or adapted for the conveyance of no greater than 10 individuals, including the motorist. ‘Motor vehicle’ does not include a truck, forklift, hoist or other similar vehicles. This guideline guarantees that the VAT incurred on essentially business cars is not obstructed due to incidental personal use.
An automobile will not be treated as being available for personal use if it is within any of the following classifications:
a taxi accredited by a competent authority
an automobile registered as, and utilized as an emergency situation vehicle, consisting of by the police, fire brigade, paramedics, or similar emergency services and
an automobile which is utilized in a lorry rental organization where it is rented to a customer
Employee related expenses
Particular expenditures incurred by a service for the function of their employees are not enabled input tax recovery. The VAT paid on employee-related expenditures will not be recoverable by the business where the goods or services are purchased to be utilized by workers for no charge to them and for their individual advantage.
There are, nevertheless, specific exceptions from the above guideline. The above guideline will not use in the following circumstances:
Where the company has a legal responsibility to provide those goods or services to the workers under any suitable UAE labor law.
Where it is a legal responsibility or documented policy of the company to supply those goods or services to workers, to enable them to perform their role, and where it can be proven to be regular business practice to do so in the course of work
For instance: In the employment contract of call center employees, it is assured that conveyance to and from the office will be given, for late-night shifts. Here, as this is a contractual responsibility to the staff members, the organization can recover the VAT paid on the conveyance expenditures.
Thus, companies need to note these costs on which input VAT recovery is obstructed. Even more, it is necessary to keep in mind that the basic conditions for input tax recovery require to be pleased, for input tax healing to be allowed on any type of service purchases. The conditions for input tax healing are listed in our article Input tax recovery under VAT in UAE.