5 FAQ’s on Non Recoverable Input VAT

One of the most frequently asked questions by our clients in the UAE is whether input VAT on certain expenses is recoverable or non recoverable.

So here we have answered some of the most important and frequently asked questions about Non Recoverable Input VAT.

You need to be very careful on input VAT recovery when filing for the VAT returns. If a Non Recoverable Input VAT was claimed, this could lead to penalties. So it is always best to stay aware of this, if your business is registered for VAT.

1. We have many client meetings in a year, and can input VAT on expenses incurred for the meeting, like food and refreshments be claimed?

This depends, if the food and drinks provided are in the normal course of the meeting the VAT on the expenses should be recoverable.

FTA has provided guidance on this, let’s look into the criteria to consider the VAT as recoverable:

i) the hospitality is provided at the same venue as the meeting;

ii) if the meeting is interrupted, only by a short break for the provision of the hospitality and then resumes as normal e.g. a lunch break;

iii) the cost per head of providing the hospitality does not exceed any internal policy the business normally has in place around employee subsistence claims, where available;

iv) the food and beverage provided is not accompanied by any form of entertainment e.g. a motivational speaker, a live band etc.

However, if the expense on the food and refreshments are considered substantial then such expenses cannot be claimed. The concept here is very simple. The FTA doesnt want companies to spend extravagant amounts on such hospitality and claim the VAT on them. 

2. Are VAT miscellaneous office expenses recoverable?

Yes, normal office expenses that are used by staff and visitors are recoverable for VAT. FTA has provided some examples of such expenses they consider the VAT to be recoverable:

i) tea and coffee available in the office or provided during meetings for general use by employees and non-employees for no charge;

ii) flowers for display in receptions, offices or for decoration during special events; 

iii) dates, chocolates, or equivalent snacks which may be available in the office or during meetings for general use by employees and non-employees for no charge.

3. Our company has decided to throw an office party, are the expenses for such a party recoverable for input VAT?

No. In general any entertainment provided to employees is not recoverable. Expenses that have been incurred for employees for no charge to them are not recoverable unless:

i) where it is a legal obligation to provide those services or goods to those employees under any applicable labour law in the UAE or Designated Zone in which the entity is;

ii) it is a contractual obligation or documented policy to provide those services or goods to those employees in order that they may perform their role and it can be proven to be normal business practice in the course of employing those people; or

iii) where the provision of goods or services is a deemed supply under the provisions of the Decree-Law.

4. I have purchased a car for business purposes in the UAE. Does this qualify as a recoverable or non recoverable input VAT?

Non recoverable. If a motor vehicle is purchased or leased for business purposes and is available for the personal use by any person, it cannot be recovered. Most vehicles purchased by companies in UAE are for business purposes, but  also used by the assigned person for personal use as well. It will also be very difficult to prove that a motor vehicle purchased is not used for personal use as well.

5. If I provide Exempt supplies, can I claim the Input VAT?

Any Input VAT on expenses that are in connection with exempt sales cannot be recovered. If an expense contributes to both exempt and standard rated / Zero Rated, then only a portion of the Input VAT contributing to the exempt sales will be non recoverable.

When in doubt, it is always advisable to consider the input VAT as non-recoverable.

Bottom Line

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