7 Business expenses on which Input VAT can be recovered

7 Business expenses on which Input VAT can be recovered

VAT Regime was introduced in UAE on January 1, 2018. It has been almost one year in the introduction of VAT in UAE and we are pretty sure that businesses enterprises are aware of how to claim for the Input VAT recovery.

The UAE government also has clearly mentioned the conditions for the businesses while there is also a detailed list expense wherein the businesses are allowed to recover the Input VAT.

The eligibility of Input VAT has clearly mentioned under the VAT regime. However, there are various types of expenses which people might think not directly related to outward supplies but VAT has allowed people to claim Input VAT recovery on it.

In this article, we are going to tell you about 7 types of expenses which have been frequently incurred by the businesses and they are eligible to recover Input VAT on it.

Input VAT Recovery on 7 business expenses

1. Food and drinks For Customer or clients

If an employer has offered lunch, soft drinks, coffee or any kind of beverages to the customers during the course of the business meeting then the businesses are liable to claim for Input VAT. If providing additional benefits to the customers by presenting gift, movies or lunch in this case businesses would not be liable to claim input VAT on it.

From the above definition, it is clearly stated that the VAT regime allows taxpayers to claim Input VAT on the entertainment expenses only if it is incurred during the course of business meeting otherwise it is totally restricted.

2. Fuel expenses

For instance, if you deal in supplying goods and on the daily routine basis you incurs petrol expenses to deliver goods to the customers in this condition businesses would be allowed to recover input VAT. However, it can be applied in both personal and professional purpose. It is quite difficult to evaluate and distribute the Input VAT recovery. People who are working in the marketing field are allowed to claim petrol expenses.

3. Employee Conveyance Expense

Under the Employment Contract Act, it is clearly mentioned that the conveyance facility should be provided to the employees during the late night hours which includes ‘To’ and ‘From’ the office. Here the business can claim for the petrol expenses incurred by them under the VAT regime.

Reason being a contractual obligation or the documented policy of the organization which has included the said services to the employees for assisting them in performing job responsibility and is a normal business practice.

4. Visa to employee Expenses

The Visa Cost of expat employees has been incurred by businesses in UAE and they pay 5 percent of the cost of Visa. Therefore, businesses would be allowed to recover the input VAT on such kind of expenses. Here, the Visa cost incurs by business enterprises allow employees to perform his duties and it is a normal course of the business activity.

5. Employee Medical insurance Expenses

Businesses in Dubai provides health insurance facility to their employees and pay 5 percent VAT on it. Under the VAT regime, the business can claim for the VAT paid on medical insurance which should be compulsorily provided to the employees.

6. Expenses on legal consultation

In case a business firm indulged in the supply of taxable goods has paid Value added tax on the legal fees on a continuous basis for getting legal consultation service from a legal consultancy, is entitled to get the VAT paid on legal services by the business firm even if it is not directly attached to the supply of goods.

Reason being the non-necessity of link each & every purchase with the outward supply within the business unit as various purchases such as the legal consultancy is used by the business firm other than the supply

7. Service industry Capital Expenditure

For instance, law-based firm deals in supplying taxable services has purchased the new furniture or office table for its employees. Although, the law firm has been using the furniture or table to perform its taxable activities so the law firm is liable to claim for the input VAT incurred on purchasing the new furniture.

Impact of VAT in UAE [1 Year and Counting]

vat in uae in one year

UAE recently celebrated its first VAT anniversary. The country, known for its rich oil reserves and a booming global tourist hub, had introduced VAT to open up a new source of non-oil revenue for offering efficient and much improved public services, including medical facilities, good roads, transportation facilities, public schools, parks, waste control, and more.

The VAT in UAE was introduced on Jan 1, 2018. More than a year later, tax experts acknowledge the role of FDA (Federal Tax Authority) and UAE public for the successful implementation. Reportedly, the 5 percent VAT was the first of any form of TAX introduced in the Emirates.

The Role of FTA in VAT UAE Success

FTA was at the realm of all VAT related decisions in UAE. Their principle role includes key functions like :

  • Clearing all impending ambiguities (if any).
  • Issuing timely circulars and guides on VAT related provisions.
  • Ensuring compliance from UAE traders, business owners and the public at large.

The UAE VAT rates are one of the lowest in the world right now. VAT UAE provisions mandate VAT registration for all natural and legal UAE person with taxable business supplies exceeding Dh375,000 ($100,000) during the previous 12 months.

In case the total taxable supplies have not exceeded Dh375,000 ($100,000) but expected to cross the threshold within 30 days of the succeeding year, VAT registration must be done.

While registration is key for a robust VAT, filing VAT returns are also equally important. VAT UAE norms mandate large businesses to file monthly returns. Other business can file quarterly returns based on revenues.

FTA must be applauded for ensuring maximum registration and easing compliance burden with timely guides. This ease of process coupled with companies embracing VAT readily by restructuring business processes and systems have made the transition period smooth and frictionless. FA is yet to release tax revenue figures but the recent increment in federal budget spending surely hint towards better days ahead.

The role of FTA is particularly more prominent considering the fact that VAT UAE was in itself the first among any form of tax introduced in the emirates. However, UAE and FTA exempt precious metals such as gold, silver, and platinum as well as sectors such as healthcare, education, and transport from the VAT ambit.

The Tourist VAT Refund Scheme

The VAT Tourist Refund Scheme has now been completely put into place. The first phase was launched on November 18. The second and final phase was introduced on December 16. The achene now facilitates international tourists in UAE to make timely VAT refund claims against purchases made by them on the UAE soil.

Tourists visiting UAE can make claims while leaving the country from any of the following international airports – Dubai, Abu Dhabi, Sharjah, Al Ain International Airport, Al Maktoum International Airport and Ras Al Khaimah International Airport.

In addition to this, tourists can also claim refunds via two ­sea ports – Zayed Port in Abu Dhabi and Port Rashid in Dubai; and four land ports – Al Ghuwaifat Border Post in Abu Dhabi, Hili Border Port and Al Madeef Border Crossing in Al Ain and Dubai’s Hatta Border Exit. Refunds are transferred within 90 days of the claim.

The Projections

The first UAE VAT accrues are projected to touch the Dh12 billion mark in 2018. For 2019, the prediction is a whopping Dh20 billion. Amidst years of the dependence of fledgling crude prices as the primary revenue source, the VAT UAE not only opens new diverse revenue sources but also shows the way ahead for other GSS states and oil producing nations.

The Audits

As the new year slowly sets in, businesses in UAE are gearing up for VAT Audits. The FTA Audits will ensure that businesses stick to fair book-keeping. FTA Audits will be carried out over a period of five working days starting with the day following the particular emails release date.

The Audit periods will include two phases for January 1, 2018-to-April 30, 2018 and May 1, 2018-to-July 31, 2018 tax periods. Businesses must ensure that their expense claims are backed by legitimate and appropriate documents. Last but not least, businesses must also ensure robust book-keeping with timely payment of due tax.

Tourists VAT refund: Processed Totalled 5,000 Applications per Day

UAE VAT Refund Scheme

UAE VAT Refund Scheme for Tourists Sets New Bars for Tourism Industry

The popular review for UAE’s Tax Refunds for Tourists Scheme is out. And global tourists have been pleasantly satisfied with the easy and real-time refund mechanism.

The Federal Tax Authority (FTA) conducted its own inspection which confirmed the growing popularity of the scheme among visitors in one of the world’s most attractive tourist hubs.

Among other things, the FTA ensured that the electronic refund scheme adheres to the criteria and conditions as well as ensure high efficiency and accuracy, in line with current global standards.

Tax Refunds for Tourists

UAE was among one of the 5 GCC countries to introduce VAT (5%) on 1st of January 2018. In a move to keep its tourist appeal intact, it had introduced an electronic system to make VAT Refunds for Tourists visiting and shopping in the Emirates.

The Tax Refunds Scheme for Tourists was rolled out in a two-phase manner. UAE partnered with global systems operator Planet for the first phase implementation of the scheme introduced on November 12.

In it, it has so far covered 12 UAE Ports, 6 Airports, 2 Sea Ports and 4 land Ports. Major beneficiaries of the refund scheme were Asians, Europeans and GCC Nationals.

FTA director-general Ali Al Bustani shared data which cement that the scheme which relies on cutting edge technology is not only customer friendly but flawless too. Since the rollout, an average 5,000 refunds have been processed each day.

At present 7,181 retail outlets are serving tourists via the electronic refund scheme. There is no cap on the maximum cash refundable amount. However, electronic transfer is limited to Dh10,000 per day.

Tourists can recover taxes from tax refund offices set up at one of the 12 air, land, and seaports. All they need to do is submit tax invoices bearing stickers of any one of the 7,181 retail outlets registered in the Tax Refunds for Tourists Scheme.

In addition to this, the tourists need to furnish respective passports and credit cards during refund claims. Identifying the outlets is also easy. Registered outlets will have ‘tax-free’ logo at the display. Further, they properly explain the easy to follow recovery procedures.

Input Tax Recovery in UAE [Process and Conditions]

A registered dealer is liable to pay input tax on every purchase for further course of business. Input Tax Recovery is a key feature of VAT reform in UAE. Under this, the UAE government has allowed registered persons (taxpayers) that they can recover the input tax paid by them on the purchases to avoid the confusion of double taxation in the supply chain.

It simply means that an individual can lessen the figures of input tax by claiming (recovery) the tax payable on inputs and he has to pay the balance amount of tax. Make sure that that tax is to be payable on each stage of the supply chain as value addition.

So, the amount of input tax recovery in UAE plays a significant role in the cash flow and operating expenses under VAT.

Firstly, let’s understand the process of input tax recovery-

Process of Input Tax Recovery

In Abu Dhabi, Vaah & Co has purchased 10 laptops in February 2018 and the price of per computer is AED 1,000.

In the similar month, Vaah & Co supplies 20 laptops to its customers at a price of AED 2,000. A 5 percent VAT has been imposed on the supplies made by Vaah & Co. on the supply which amounting AED 2,000.

Vaah & Co paid AED 2,000 as output tax for the month of January ’18

Input tax recoverable for the month of February ’18 is AED 500

For calculating the tax payable, we can put the figures in the formula

Tax payable = Output tax payable – Input Tax Recoverable

Hence, tax payable by Vaah & Co. for the month of January, ’18 is AED 2,000 (Output tax payable) – AED 500 (Input tax recoverable) = AED 1,500.

As you can see above, the input tax paid by the company will be reduced from their out tax liability, and they are required to pay only the balance tax to the government. This is how input tax works.

Input Tax Recovery Condition

The VAT paid on while buying the goods and services which are used for business cause and for few conditions can be recovered by a registered business.

The conditions which must be satisfied are-

A. Must Be Used To Make Taxable Supplies

Taxable supplies are the supplies on which the tax is likely to be paid (i.e. supplies made at zero-rated supplies or 5%). Only on the inputs which are used to make taxable supplies can be allowed to claim the Input VAT recovery and not the exempt supplies.

B. Recipient Gets And Keeps The Tax Invoice

The recipient who is claiming the input tax recovery on a supply must confirm that they receive the Tax Invoice involved to the supply and must be kept in the records. The Tax Invoice must show all the details of the supply which is associated with the input tax recovery which is to be claimed.

C. Recipient Pays The Remuneration For The Supply

The receiver who claims input tax recovery must pay or plan to make the payment of remuneration for the supply within a half year (6 months) after the date of supply which has been agreed for the supply.

Recoverable Input Tax

The recoverable input tax is the tax amount that has been paid or return by the Federal Tax Authority particularly to the registered taxpayer under the VAT Reform in UAE

A registered taxpayer can claim for the input tax incurred on purchases goods and services in case of:-

  • Taxable supplies
  • Supplies and Services are to be made within a state
  • Exempted Supplies that have been listed in the VAT Decree-Law must be made within the state

Blocked input tax

VAT refund is not available on the input tax paid on the following types of expenses:

  • Employee-related expenses
  • Entertainment expenses
  • Supplies used to make exempt supplies
  • Vehicles used for personal purposes

Useful Article: 7 Hidden Business Expenses Eligible for Input VAT Recovery

So, the supply for input tax recovery is a very important component of VAT in UAE. Businesses must confirm the identity supplies correctly on which input tax can be retrieved, confirm that they can satisfy the conditions for claiming the input VAT recovery and also claiming it on time.

This will help in the business by confirming the perfect cash flow and working capital. All the works can be made simple by using the VAT software which will automatically perform all these tasks w.r.t. ITC which will give enough time for you to focus on your business.

Declaration Of Input Tax Credit In Vat Return Form 201

Now, a taxpayer needs to provide the following details when filing a claim for the credit of taxes in VAT Return Form 201:

    • VAT registration number
    • ITC balance of VAT as per last return
    • Turnover details
    • Date of return filing
    • Details of pending forms
    • Difference in amount (The rate charged at the time – Actual VAT rate on the supplies)
    • Final eligible ITC on VAT

Tourist Refund Scheme Phase 2 Rollout From Dec 16

Tourist-Refund-scheme-phase-2

According to an announcement by the Federal Tax Authority (FTA), all preparations for the launch of the 2nd phase of the VAT refund scheme for Tourists have been completed and the scheme will of officially launched on Sunday, December 16. Starting from this date, tourists in the UAE would be able to claim a refund of the VAT paid by them on the purchases made from 12 air, land and sea ports covered under the scheme.

The first phase of Tourist VAT refund scheme was introduced on November 18, 2018, under which purchases made at the Abu Dhabi, Dubai and Sharjah airports were covered.

The following ports will be covered under Phase 2:

3 Airports – Al Ain International Airport, Al Maktoum International Airport and Ras Al Khaimah International Airport
2 sea ports – Zayed Port in Abu Dhabi and Port Rashid in Dubai
4 land ports: Al Ghuwaifat Border Post in Abu Dhabi, Hili Border Port and Al Madheef Border Crossing in Al Ain, and Dubai’s Hatta Border Exit

Recommended: VAT Refund Process for New Residences Announced by FTA

The refund scheme for tourists visiting the country is already in effect, with over 3,800 daily refund requests being processed as of now. Al Bustani, director-general of FTA, indicated that he aims to grow daily VAT refunds more in the coming period. “The FTA coordinated with the system operator Planet, running all necessary experiments to ensure the scheme is implemented smoothly and accurately,” he said.

The FTA said that retail stores that are registered in the system under the refund scheme must provide tax invoices for such eligible transactions. These stores can be distinguished by placing ‘tax-free’ sign on their outlets to let the customers know that they are registered for the scheme.

Recommended: VAT Refund Scheme for Businesses in UAE

Earlier, at the time of the launch of the VAT refund scheme for tourists, the FTA had also released a list of conditions for tourists to be eligible to apply for VAT refunds. A buyer must be 18 years or above, a foreigner and must have purchased the said goods on UAE soil and paid VAT on the same with the intention to take the goods outside of the country within 90 days from the purchase date.

UAE Government Executes A New VAT Relief Scheme For Charities

charities vat compensation scheme

The UAE Government has made the announcement of a new tax relief scheme for charities who want to compensate for the VAT expenses they have incurred on donations and charities under the VAT reform. The step has been taken to ensure that charities have to pay less VAT and can keep most of the amount raised by them through fundraising and other charitable acts.

A good news for the charitable institutions or non- profit organizations is that now that they can claim for the compensation under the VAT reform which is set to be commenced in the New Year.

Under the new tax relief scheme, €5 million will be released for refunds to various charities who pay VAT on fundraising. The charities who apply for the compensation have to pay less tax which will result in more money incurred by charities through fundraising for good causes.

Read Also: Three UAE Free Zones List Of VAT Exempted Areas

Under the charities vat compensation scheme, the charitable institutions are liable to apply for the compensation paid for one year in advance, that means the charities, who have incurred the VAT costs in the whole year of 2018, are also allowed.

Michael McGrath, the party’s finance spokesperson said that the scheme has been pending for long period of time and now finally introduced by the UAE government. According to Mr McGrath, “It is a really important step forward and a breakthrough that has been long sought by the charitable sector because the reality is that a lot of the money that they raise through fundraising, by volunteers is ultimately paid to the Exchequer by way of VAT when they expand their services and invest in facilities.”

“I am advised that the Revenue Commissioners have developed systems to enable charities submit claims and to support processing and payment of claims. The facility to make claims under the scheme will be available on ROS from January 2019,” he added.