UAE: Input VAT recovery and mobile phone packages provided employees for business use

Guidance regarding recovery of input VAT relating to mobile phone packages provided employees for business use

Input VAT recovery and mobile phone packages provided employees for business use

The tax authority issued guidance—VAT Public Clarification VATP028 (6 December 2021)—regarding recovery of input value added tax (VAT) relating to mobile phones, airtime (call minutes), and data packages made available to employees for business use.

The guidance provides that recovery of input tax on mobile phone expenses is only possible when a strict business-use policy is in place and the taxpayer actively enforces the policy. The tax authority stated that taxpayers cannot change their existing policy to apply retroactively. Therefore, this guidance could affect input VAT previously recovered in relation to mobile phone expenses, and any invalid VAT claims would need to be corrected.

The guidance explains that when costs are incurred to make taxable supplies, the taxable person is permitted to recover input VAT incurred on mobile phones, airtime, and data packages made available to employees for business purposes, only if all of the following conditions are met:

  • The business is registered for VAT purposes.
  • The business has acquired the mobile phones, airtime, and packages in its own name, and not in the name of the employee (the business’ details are on the invoices and contracts with mobile supplier and service providers).
  • The business has a documented policy that clearly states that:
    • Mobile phones, airtime and packages are to be used only business purposes, and
    • There are consequences if such services are used by employees for personal use.
  • The business regularly monitors the use of airtime and packages, and retains justification for variances, if any. As part of monitoring the acceptable use of phones, airtime, and packages, the taxpayer must consider the variance between the actual usage and the average airtime and packages used for the specific role of the employee and the nature of the business purposes.
  • The taxpayer has a policy to take action against employees who use mobile phones, airtime or data packages for personal use (pursuant to a documented policy).
  • The taxpayer retains valid tax invoices with respect to the acquired mobile phones, airtime and data packages.

If the business acquires airtime and packages based on expected business requirements, any airtime and packages used in excess of the business plan would be regarded as non-business use, unless the additional airtime and packages are “recharged” to the employee with output tax, or if there is robust monitoring in place to substantiate the actual use.

Only documented policies that were already in place at the time when the mobile phones, airtime, and data packages became available for employee use will be recognised.

KPMG observation

Previously, there was uncertainty as to whether such input VAT was recoverable or not, given that such services could be easily available for the employee’s personal use (as well as business use).  Taxpayers need to evaluate whether they have a strict policy (or need to introduce one) or if the entire amount of input VAT incurred on mobile phones, airtime, and data packages available for employees is to be treated as a business cost.

Read a December 2021 report prepared by the KPMG member firm in the United Arab Emirates

 

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