Input tax credits allow businesses to claim input tax credits for purchases or expenditures related to the production of taxable items or business activities. Although you can claim most purchases and expenses, some expenses are not deductible. Oman’s VAT regulations determine which expenses are not eligible for input tax credit. This blog details the list of expenses for which VAT refunds are restricted.
Goods or services used in the hospitality industry.
Input tax paid on entertainment expenses not provided in the ordinary course of business is excluded from input tax credit. For example, accommodations, entertainment, etc. that are not offered during regular business hours.
Personal use motor vehicles and related goods and services
Input tax paid on personal use motor vehicles is excluded from input tax credit. This restriction also applies to products and services such as maintenance, repairs, and insurance. Items related to automobiles used for purposes other than business.
A motor vehicle is herein defined as a vehicle designed or adapted to carry not more than 10 passengers, including the driver. In the subsequent situations, this restriction is not applicable:
Vehicles used in the course of a vehicle rental transaction to a customer
Vehicles registered as emergency vehicles
Provision of food and catering services
Expenditure, if the expenditure relates to food and beverages, catering services or services; Input tax refunds are limited to such purchases or expenditures.
Goods and Services Used in Exempt Supplies.
Services that are not subject to VAT are exempt from tax. Input tax credits are limited if you pay VAT on expenses or purchases used to provide tax-free services.
For example, Al-Ameen LLP purchased raw materials worth OMR 1,000 including 5% VAT. H.50OMR. Raw materials are used to create finished products and are exempt from VAT. Al-Ameen sold the finished product for 1,100 Omani Riyals.
In the example above, Al-Ameen does not charge his VAT on the sale because the finished product is exempt from his VAT. On the other hand, you cannot claim input tax credit of OMR 50 paid on purchase of raw materials.
If this input tax credit is partially used for the production of taxable and non-taxable supplies, the input tax credit can be recovered to the extent that it is used for the provision of taxable supplies. The Sales Tax Ordinance provides guidelines for calculating partial exemptions or refunds.
Goods or Services Used for Personal Use The main requirement for the
deduction is that the goods or services are used in a business activity. Input tax credits for such purchases or expenses are blocked if used for personal or business needs.
If a part of a taxable item is used for manufacturing and personal use, input tax credit can be claimed to the extent used for manufacturing.
You can also Register for VAT Registration on our website:
https://thevatconsultant.com/
