Claiming Value Added Tax or VAT back is not a process that is simple and straightforward. There are rules which can be very complex. Not to mention the exceptions to certain items paired with various rates for VAT. This makes claiming or even simply calculating VAT to be refunded an absolutely challenging process.
As soon as the business is registered with the Federal Tax Authority UAE for VAT purposes, the business has to charge the VAT rate for certain goods and services. It then has to pass the VAT paid to the FTA. Undergoing VAT registration in UAE allows a business to reclaim the VAT that is paid on the items and services it acquires. This means effectively paying five percent less for goods and services that the business acquires!
If your company VAT accounts are already getting complicated, it’s worth speaking to regulated tax agent in Dubai prior to filing a VAT refund. When there are errors to the request, the FTA can request for a VAT audit and impose fines when they find out discrepancies in VAT accounting.
In order for you to know what goods and services exactly you can claim back from VAT paid by your business for business expenditures, there’s a need to understand the goods and services which are eligible for VAT refund.
The exceptions to what a business can claim for VAT refund in UAE are as follows:
- Products and services that are for personal use – when business administration places expenses on the company but they’re actually using them for their personal lives like a new computer or stationery, the VAT paid on the expenses can’t be reclaimed.
- Products and services which are considered as exempt from VAT – when you purchase materials which your business needs and you create brand new services or products which are VAT-exempt, then you won’t be able to claim VAT back for the materials/services.
- Business entertainment costs – there’s a lot of costs which businesses in UAE incur when they are entertaining clients. VAT paid for such costs won’t be eligible for VAT refund.
- Secondhand goods – the goods that are secondhand or used when bought have different rules for VAT reclaim in UAE.
VAT Reclaims for Previous Business Expenses
The good news with VAT registration in UAE for small businesses is that the first VAT return can be used in reclaiming VAT on costs which the business incurred previously or before VAT registration. This is the one chance to claim back VAT but there are a couple of limits.
- Capital expenses – VAT can be claimed for all capital expenses like equipment and laptops purchased prior to VAT registration. Goods have to be owned by the business and still used or were used in making new products that are still owned by the company.
- Services – VAT can be claimed back for services acquired in UAE which the business got for the previous months prior to date of registering for VAT
Take note: there must be clear records like VAT receipts with the VAT amount included when claiming VAT from a VAT return.
VAT Refund for Personal and Business Use
Small business owners will be able to claim VAT on goods and services which are split between person and business use. With businesses that are operated from home, VAT can be claimed partially for the cost of broadband and utilities. For instance, with a business that runs from the house and utilizes half of the broadband of the household, fifty percent of the VAT from the broadband service cost will be reclaimed including for electricity and gas.
VAT Refunds for Food and Travel
VAT can be claimed for costs from traveling if the purpose was solely for doing business like attending trade shows or visiting customers. This includes VAT that is charged on hot food, travel, and hotel accommodation.
VAT Refunds for Vehicles
The business will be able to reclaim VAT that is paid when getting a new vehicle, may it be an executive car or commercial vehicle. The vehicle must be exclusively and solely for the use of the business. There must be sufficient proof that the vehicle isn’t available for use personally by the company administration or the employees.
Proof submitted to the FTA can be parking fees or secured garage that is attached to the business’ premises. VAT can be claimed for cars that are used as self drive rentals, for driving lessons, or for taxi service.
There are a lot of rules set for VAT refunds and the items or services which businesses can reclaim. If you want to know more about UAE VAT return filing or VAT refunds, don’t hesitate to contact us here in VAT Registration UAE! You can call for a quick chat with seasoned regulated tax agents in Dubai to clarify any questions you may have.