UAE: VAT Public Clarification

In detail

On 7 December 2021, the FTA published a new VAT Public Clarification (VATP028) to provide guidance on the application of the VAT legislation with respect to the recovery of input tax incurred on phones, airtime, and packages acquired for business use. 

According to the Public Clarification, in principle, where an employer acquires mobile phones with telecommunication services (airtime and data packages) for use by its employees solely for business purposes and has a strict policy to restrict the use to business purposes, the right to use the devices and telecommunication services would not constitute a personal benefit for the employee, provided the value of the telecommunication services was determined based on actual historical business usage. 

The Public Clarification further clarifies that a business is entitled to recover input VAT from mobile phone usage if these costs are incurred to make taxable supplies and all the following conditions are met:

• The business is registered for VAT and acquired phones and telecommunication services in its own name;

• The business has a documented policy in place which clearly states that the usage of phones and telecommunication services may only be for business purposes, stating the consequences of any personal use;

• The business regularly monitors the use of  telecommunication services and retains justification for the variances; 

• The business takes action against employees using phones and telecommunication services for personal use in accordance with the documented policy; and

• The business retains valid tax invoices in respect of the phones and telecommunication services acquired.

The Public Clarification also emphasizes that only documented policies which have already been in place at the time the phones and telecommunication services were made available to the employee will be considered. If any of the above five conditions are not met, the recovery of input VAT incurred will be blocked in accordance with Article 53(1)(c) of the Executive Regulation.