Input VAT deduction for mobile phones and packages, made available to employees for business use.
The UAE Federal Tax Authority (“FTA”) published a new VAT Public Clarification (VATP028) that provides guidance on the recovery of input tax incurred on Mobile Phones, and associated telecommunication services made available to employees for business use.
UAE businesses can recover input VAT incurred on mobile packages under certain conditions.
In instances where a business provides mobile phones, Airtime, and Packages to its employees solely for business purposes, the right to use the mobile phones, Airtime, and Packages would not constitute a personal benefit for the employee, and hence, the input VAT incurred in acquiring such services is recoverable if the following conditions are met.
UAE businesses are entitled to recover input VAT incurred on 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, and 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.
If all of the above requirements are not met, the recovery of input tax incurred in respect of Phones, Airtime, and Packages will be blocked in accordance with Article 53(1)(c) of the Executive Regulation.
The Federal Tax Authority also emphasizes that the policy must be documented and current (Backdated policies shall not be accepted), and must include consequences for personal use.
All employees should be made aware of the repercussions of not abiding by the policy, in addition, a proof of action taken against employees not complying with the policy should be retained.
Where to start?
- Ensure that telecommunication contracts are in the name of the business and that valid tax invoices are retained.
- Draft a policy that clearly restrict the use of Mobile phone, airtime, and data packages to business use only, stating the consequences of breaching.
- Put a monitoring process in place to ensure compliance, and take appropriate action against personal use.
- Review previously filed tax returns for input VAT claims on mobile, airtime, and data packages expenses, and assess if a correction is required.
For a detailed discussion on various aspects of this Public Clarification, please contact us.