Recovery of input VAT on the expenses

The VAT law in the UAE provides provisions which allow business to recover VAT paid for in certain expenses. The input VAT can be recoverable for any tax period if the total input tax paid for goods and service are used for making any taxable supplies.

Also Read: VAT Registration For Abu Dhabi

Conditions to recover input VAT

Some of the conditions to claim VAT incurred on expenses are the following:

  • The business must be a taxable person.

Business have to be registered for VAT to reclaim input VAT. if the The end users who actually pay  and consume taxable products are not registered  they cannot claim the input tax credit.

For example, if a retail shopkeeper buys goods from a wholesaler, then he would be able to take the input tax credit,

but if the end user buys goods from a retail store, then he cannot claim the input tax credit.

  • VAT should have been charged correctly

IF the VAT mount charged was wrong or have some errorsthen the input tax cannot be claimed.

  • There must be proper records showing VAT paid

Proper VAT invoice records should be maintained, as it is the document that shows that VAT has been paid by you on the goods that are purchased.

  • The goods and services acquired are used or intended to be used for making taxable supplies

Input VAT maybe recovered if purchased goods are used to manufacture taxable end products.

Businesses need to ensure that they are able to identify supplies on which input tax can be recovered,

and  make sure that they fulfill the conditions for claim of input VAT recovery.

Expenses under which input VAT can be recovered

  • Food and drinks provided to a customer

Any simple or non- extravagant lunch offer to employees for business meeting or having food or soft drinks delivered to the office.

or any food consumed during the course of a meeting will be allowed for input VAT recovery.

The expense comes under entertainment expenses and VAT law in UAE allowed the taxpayers to recover input VAT for such as long they are provided in the normal course of meeting.

  • Petrol expenses

VAT can be claimed If a taxable person incur any petrol expenses for delivering goods to a customer.

  • Conveyance expenses paid to employees

In an employment contract it may be promised that conveyance to and from the office for late night shifts can be recovered fully.

If so then this is contractual obligation or documented policy of the employer to provide those conveyance to employees .Such allowance which are contractual and provided in an employment contract can be fully recovered.

  • Expenses incurred for employee visa

A company can also incur visa cost for the employees and pay 5% VAT on the visa processing. The employer can recover the VAT on such expenses.

  • Medical insurance expenses

Businesses in Dubai provide health insurance for their employees and pay 5% VAT on the cost of insurance.

The VAT paid on medical insurance is to be fully recovered since it is a legal obligation of the employer under UAE law.

  • Legal consultation expenses

Business engaged in the supply of taxable goods pay VAT on fees for periodically acquiring a legal consultation service from a law firm.

Though legal services are not directly related to supply of goods, legal services are acquired for business operations which means VAT can be recovered.

Capital expenditures by the service industry

Any firm engaged in supply of taxable services, purchases new offices desks for their employees and to recover VAT incurred on purchase of the desks. This applies to similar expenditure for running a business day to day operation.

VAT Recovery Services in UAE

Input VAT can be recovered depending on certain circumstances as per VAT law of UAE. It is important that businesses distinguish between irrecoverable and recoverable input tax to claim and pay the correct amount of tax in their accounts. If you are confused about input VAT recovery in Dubai, seek guidance from VAT experts in UAE.

We understand every client’s situation and have the flexibility to tailor our services to a particular client’s requirements. Call us for further discussion on VAT recovery and we would be clad to assist you.