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Questions About Non-Recoverable VAT Input Tax in The UAE?

As a VAT taxpayer, it is important to be able to distinguish between recoverable and non-recoverable input tax in The UAE so you can offset, claim and pay the right amount of tax.This resource will helpyou understand the conditions under which you cannot recover VAT on business expenses.

What is input tax?

Input tax is the VAT paid on purchases of goods, properties, or services from VAT-registered suppliers. The tax applied on the sale of goods and purchases is known as output tax.

Input tax recovery

Many provisions under VAT guidelines in The UAE allow businesses recover on the input tax in the form of direct refunds or tax credits. Categories eligible for input tax refunds include imports, domestic purchases and any self-assessed VAT. Purchases of are not included.

Non-recoverable input tax

Under Article 53 of the certain specific goods and services do not qualify for input tax deductions. This includes the following categories:

VAT registration in The UAE

Whether a business should register for VAT is broadly based on the value of their taxable supplies. The classification is as follows:

  • VAT Executive Regulation

    UAE's VAT rules exempt many supplies from recovering input tax, such as passenger transport supply.

    For example, a UAE Transport Agency purchased 5 units of item ‘X’ for AED 20,000. Total VAT paid on AED 20,000 @ 5% is AED 1000. Since the UAE Transport Agency falls under public transport supply, an exempted category, it cannot claim the AED 1000 input tax paid to buy item ‘X’.

  • Entertainment Services to Non-Employees

    Businesses cannot claim input tax recovery in The UAE on entertainment services offered to non-employees including investors, shareholders, or customers. Entertainment services classified under non-recoverable input tax in The UAE include access to events, shows, trips, accommodations, refreshments, and hospitality of any nature for the purpose of entertainment or pleasure.

  • Vehicles Used for Personal Use

    If an individual uses a motor vehicle purchased, leased, or rented by a business for personal reasons, then the input taxes paid on the purchase, rent, or lease of such vehicles are non-recoverable.

    This pertains to motor vehicles which are designed for a maximum of 10 people, including the driver, and excludes forklifts, trucks, excavators, and other commercial vehicles.

  • Goods and Services Purchased to be Used by Employees

    Input taxes paid by a business on goods and services for personal use or benefit of employees are non-recoverable, except in some cases (discussed in the next section). Here, the goods and services are a part of benefits availed by employees free of cost.

Exceptions

A business can claim input tax credit in The UAE for purchases made for employees’personal benefits including entertainment services in the following cases:

  • They are legally bound to provide those goods and services to employeesunder any applicable labour law.
  • They are under a contractual obligation or documented policy to provide those services or goods so employees may perform their job.
  • Those goods or services fall under the category of deemed suppliesaccording to the provisions of the Decree Law.

Providing comprehensive management of  VAT transactions, compliance, filings and refund claims through a simple and easy-to-use dashboard, Manage My VAT helps you keep an eye on your non-recoverable expenses. to take full advantage of your VAT recovery opportunities and maximise your savings.