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It’s been more than 10 months from the date of implementation of VAT in UAE and we are sure that businesses are quite familiar with the concepts of Input VAT recovery. As you know, the UAE VAT law clearly prescribes the conditions for businesses to recover input VAT on expenses as well as lists the expenses which are blocked for Input VAT recovery.
While the VAT law clearly states the Input VAT eligibility, yet there are certain types of expenses which you may think are not directly related to outward supplies but VAT law allows you to recover Input VAT on it.
In this article, we have identified 7 such expenses which are incurred frequently by the businesses and input VAT recovery is fully allowed.
A simple, non-extravagant lunch with a customer as part of a business meeting or having food and soft drinks delivered to the office and consumed during the course of a meeting will be allowed for input VAT recovery. However, taking a customer out for lunch to treat or entertain him will not be allowed.
By definition, the above expense becomes part of the entertainment expenses and VAT law allows the taxpayers to recover input VAT on the entertainment expenses as long these are provided in the normal course of a meeting. Otherwise, it is completely restricted.
Let’s say, you are engaged in the supply of goods and inured petrol expenses for delivering goods to the customer. The VAT paid on petrol expenses for business use can be claimed fully. However, if it is used for both personal and business purpose, it becomes a little difficult to track and apportion the Input VAT recovery.
In the employment contract of employees, it is promised that conveyance ‘To’ and ‘From’ the office will be given, for late-night shifts. Here, the VAT paid on conveyance expenses can be fully recovered.
This because any contractual obligation or documented policy of the employer to provide those goods or services to employees to enable them to perform their role and where it can be proven to be normal business practice to do so in the course of employment are allowed to recover VAT paid on such expenses.
A business incurs visa costs for their expat employees and pays 5% VAT on the cost of Visa. You will be allowed to recover the input VAT on such expenses. This because the cost incurred here is to enable their employees to perform their duties and it is normal business practice.
Business in Dubai provides health insurance coverage for their employees and pay 5% VAT on the cost of insurance. The VAT paid on medical insurance is fully allowed to be recovered since anything which is the legal obligation of the employer under any applicable UAE labour law is fully allowed.
Let’s say, a business engaged in the supply of taxable goods has paid VAT on the legal fee paid for periodically receiving a legal consultation service from a law firm. If you look at this example, though legal services are not directly related to the supply of goods, still VAT paid on legal services can be recovered by the business.
This because it is not necessary to link every purchase with the outward supply in the business. Some purchases like the one discussed above, are consumed by the business or used in the day-to-day running of the business rather than being supplied.
A law firm engaged in the supply of taxable services purchases new office desks for their employees. Since the desks will be used by the law firm for the purpose of conducting their taxable activities, the law firm is allowed to recover the VAT incurred on the purchase of the desks.
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Checklist for Input VAT Recovery under VAT in UAE, Input VAT Adjustments in VAT Return Form 201, Apportionment of Input Tax, List of business expenses on which input VAT is blocked, Input VAT Adjustments under Capital Assets Scheme, Input VAT Recovery for Reverse Charge Supplies in VAT Form 201, Output VAT adjustments
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