Blocked Input Tax UAE VAT

Art. 53 of the Regulations specifies that input tax is blocked from recovery from THE AUTHORITY in relation to:

  • Entertainment services provided to persons other than employees
  • Motor vehicles
  • Goods and services are provided free of charge to employees.

Entertainment expenses

Input tax is not recoverable if it is incurred in the provision of entertainment services to anyone not employed by the taxable person. This includes customers, potential customers, officials, shareholders and other owners or investors.

THE AUTHORITY has issued a Public Clarification on “Non-recoverable input Tax – entertainment”.

   The provision of entertainment services to business clients. The phrase
”Entertainment services” means hospitality of any kind, including the provision of accommodation, food and drinks which are not provided in a normal course of a meeting. This applies both to current and potential clients. VAT on food and drink provided during a business meeting is therefore recoverable.

THE AUTHORITY has issued a Public Clarification on “Non-recoverable input Tax entertainment services” (VATP005). Based on this Public Clarification, where entertaining becomes an end in itself, for instance, a trader inviting clients to a show, event or trip provided for the purposes of pleasure or entertainment, input tax is blocked.

Motor vehicles

Input tax is not recoverable if it is incurred in relation to the purchase, rent or lease of a motor vehicle for use in the business where that motor vehicle is available for private use by any person.

A motor vehicle for the purposes of this Article is “a road vehicle which is designed or adapted for the conveyance of no more than 10 people including the driver. A motor vehicle excludes a truck, forklift, hoist or another similar vehicle.”

A vehicle is deemed not to be available for private use where it is:

  • a taxi, licenced by the State
  • an emergency vehicle, including police, fire, ambulance or similar
  • a vehicle which is used in a vehicle renting business where it is rented to a customer.

THE AUTHORITY has issued a Public Clarification “VATGAM1” relating to businesses in the automotive sector, that is businesses trading in cars. Businesses in the automotive sector that make taxable supplies in the UAE are therefore required to register for VAT, provided they exceed the mandatory registration threshold, or they may choose to if they meet the voluntary threshold.

sales of new cars by such businesses are subject to VAT at the standard rate, with associated input tax recoverable. This is the case however the cars sold will be used by purchasers, who may be other businesses or private individuals.

Where used cars are sold, the option exists to make use of the Profit Margin Scheme. The details of the Profit Margin Scheme are covered in Module D,

Chapter 24.

Goods and services provided to employees.

Where a business purchases goods or services to be used by employees free of charge, including entertainment services, the input tax is blocked except in the following cases:

  • where there is a legal obligation to provide the goods or services under employment law;
  • where there is a contractual obligation or documented policy, the goods or services are provided to employees in order that they may perform their role, and it is normal business practice for the employer to provide them; or
  • where the provision of goods or services is deemed supply.

Employee mobile phones, airtime, and data packages

THE AUTHORITY has issued a Public Clarification “VATP028” relating to businesses providing mobile phones, airtime, and data packages for employees’ use. This was brought in in response to the increase in remote working from 2020 onwards.

Where these facilities are provided to employees solely for business purposes and where the employer maintains a strict policy restricting their use of business purposes, the provision is not treated as a personal benefit for the employee.

To be entitled to input tax recovery, the employer business must contract directly with the supplier and hold a VAT invoice showing this. The employer must be able to demonstrate that it robustly monitors the use of mobile phones, airtime, and data packages by employees and that it takes appropriate where these are used for personal purposes.

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