Every business has certain daily daily business expenses. With the introduction of value-added tax in the UAE, certain types of fees do not allow input tax deductions. For businesses, it is important to recognize these common business expenses and ensure that input tax is not recovered on these expenses. In this article, let us understand these common business expenses, which are not allowed to recover input VAT under the UAE VAT.
The cost of preventing the recovery of input VAT can be divided into three categories:
One kind. Business Hospitality
b. Motor vehicles used for personal purposes
C. Staff related expenses
Let us understand these in detail.
A company registered under the value-added tax shall not recover input tax for expenses incurred in providing entertainment activities to anyone who is not employed by the company (including customers, potential customers, officials, shareholders, owners and corporate investors).
Types of entertainment expenses that do not allow input VAT refunds include: entertainment not provided during the normal course of the meeting (for example: accommodation, food and beverages), watching performances or activities or travel provided for the following purposes: entertainment or entertainment.
When a company incurs any such expenses, it will not be able to recover the value-added tax incurred by these expenses.
Motor vehicles used for personal purposes
Generally, persons registered under the value-added tax are allowed to recover the value-added tax incurred by buying or leasing cars used in their business activities. However, if the car is available for private use by anyone in the enterprise, the registrant will lose the right to recover the value-added tax incurred from the purchase, lease or lease of the car.
Here, “motor vehicle” refers to a road vehicle designed or modified to transport no more than 10 people (including drivers). “Motor vehicle” does not include trucks, forklifts, winches or other similar vehicles. This rule ensures that VAT generated by basic commercial vehicles will not be frozen due to accidental private use.
Cars that fall into any of the following categories will not be considered for private use:
Taxi approved by the competent authority
Motor vehicles registered as emergency vehicles and used as emergency vehicles, including those used by police, fire brigades, medical personnel or similar emergency service personnel; and
Vehicles used in car rental business and leased to customers
Staff related expenses
Certain expenses incurred by enterprises for employee purposes are not allowed to be deducted for input tax. Companies that purchase goods or services related to employees for free use and for personal gain will not be able to recover the value-added tax paid for employee-related expenses.
However, there are certain exceptions to the above rules. The above rules do not apply to the following situations:
Under any applicable UAE labor laws, employers have a legal obligation to provide these goods or services to employees.
When it is the employer’s contractual obligation or written policy to provide these goods or services to the employer to enable them to perform their duties, and it is proved to be a normal business practice during the employment process
For example: In the employment contract of call center employees, it is promised to provide transportation services for late-night shifts to and from the office. Here, since this is a contractual obligation to employees, the organization can recover the value-added tax paid for transportation costs.
Therefore, enterprises should pay attention to preventing these costs from the recovery of input value-added tax. In addition, it is important to note that the basic conditions for input tax recovery must be met in order to allow input tax recovery for any type of corporate purchase. The conditions for input tax recovery are listed in our input tax recovery under UAE VAT.