According to the UAE’s VAT, registered companies are eligible to recover VAT paid for purchasing goods and services for commercial purposes. Of course, this depends on the conditions discussed in our previous article. In addition, some supplies do not allow input tax recovery. Let us understand the nature of these supplies:
1. Supplies used to make duty-free supplies
Certain value-added taxes are declared tax-exempt in the Value-Added Tax Law, such as the transportation of local passengers and the supply of bare land. The registered business cannot recover the taxes paid on the inputs purchased for the purchase of these duty-free goods.
For example: Fatima Transports in Dubai bought 10 units of Project A for 1,000 dirhams. The VAT paid at the time of purchase @ 5% is Dh500. Project A is used to provide local passenger transport services, tax-free. Therefore, the Fatima Transport Company will not be eligible to recover the 500 dirhams paid for the purchase of item A because the item was used to provide duty-free services.
2. Entertainment services provided to non-employees
Registered companies cannot claim input tax recovery for entertainment services provided to non-employees. These non-employees can include customers, potential customers, officials, shareholders, owners or investors.
Please note that entertainment services include any hospitality, including the provision of accommodation, food and beverages that are not provided during the normal course of the meeting, and access to performances or activities or trips provided for entertainment or entertainment purposes.
For example: Alibaba Automobile Company provides its customers with 3 days of accommodation during their visit to the business premises. The hotel tariff for a 3-day stay is 1,000 dirhams, of which Ali paid 5% VAT @ 50 dirhams. Ali Automobiles is not eligible to refund the input VAT because the service is equivalent to entertainment services for non-employees.
Please note that catering and accommodation services provided by transport service operators to non-employees will not be considered entertainment services, for example, airlines provide accommodation for passengers whose flights are delayed.
3. Motor vehicles for personal use
If a registered company has purchased, leased, or leased a car for the company, but the car has been used by the company’s personal use, it cannot recover the tax paid for the purchase, lease or lease of the car.
Note that here, a motor vehicle refers to a road vehicle designed or modified to transport no more than 10 people including the driver. Does not include trucks, forklifts, winches or similar vehicles.
Motor vehicles used in this business will not be considered for personal use under the following circumstances:
One kind. This is a taxi licensed by the competent authority of the UAE
b. It has been registered and used for emergency vehicles, including police, fire, ambulance or similar emergency services.
C. It is used in car rental business and leased to customers
For example: Ali Cars in Dubai purchased 10 cars from the manufacturer of Omar Cars in Dubai. Among the 10 cars purchased, 1 was used by the owner. In this case, Ali Auto could not recover the input tax paid for purchasing a car for personal use.
4. Purchase goods or services for employees
Registered companies cannot claim input tax for the purchase of goods and services for employees, and employees do not need to pay any fees for this, which is for their personal benefit.
However, in the following circumstances, input value-added tax can be claimed for such goods and services:
One kind. According to the applicable labor laws of the UAE or designated areas, there is a legal obligation to provide goods or services.
b. It is a contractual obligation or a written policy to provide employees with goods or services to perform their duties, and it is proved to be a normal business practice during the employment process.
C. If the provision of goods or services is considered a supply
For example: Alibaba Automobile Company purchased fitness equipment for its employees. As part of employee benefits, employees can use the device for free. The value-added tax paid for purchasing fitness equipment is 2,000 dirhams. Ali Automobiles is not eligible to claim the input tax refund for this purchase because it purchased fitness equipment for its employees.
Therefore, companies registered under VAT in the UAE should carefully record these supplies, as they will not be eligible to recover the input tax paid. It is important that input tax is only recovered for supplies that are eligible for input VAT recovery.