Generally, a registered business for VAT purposes in UAE can recover VAT incurred for rental, lease, or purchase of motor vehicles that are used solely for business activities within the country. Company-bought motor vehicles that are used for the personal activities of a person employed by the company are not eligible for VAT recovery in UAE. Also, VAT incurred on expenses related to the fuel, repair, and maintenance for the company-bought vehicles which are for the personal use of employees won’t be allowed in the category, input tax.
What motor vehicles can be recovered for VAT in UAE?
The following vehicles are, as per the UAE VAT Law, recoverable for VAT paid on such, provided that they are for business use:
Taxi licensed by a competent authority in the UAE
- A vehicle that’s used in vehicle rental businesses where the vehicle is rented onto a customer
- A motor vehicle that was registered as for emergency and is used solely for emergencies, including an ambulance, fire, police, and other similar emergency services
- Forklift, truck, hoist, and other similar vehicles
- Road vehicle that’s designed and/or adapted for the conveyance of ten or more individuals, including the driver
Read also: VAT On Imports And Customs Duty
When can I file a VAT reclaim in UAE for motor vehicles?
VAT paid for motor vehicles used for business purposes can be recovered during the 1st taxation period in which these two conditions have been satisfied:
Receipt of the official tax invoice
- The intention in making payment for consideration of supply prior to expiration within six months following the agreed date for payment has been formed
Upon the receipt of the tax invoice, input tax can be recovered when the intention of making the payment within the prescribed period is established. Hence, a planned period for payment is necessary for input tax recovery in Dubai and across UAE. Where a registered business for VAT in UAE fails in making payment of consideration prior to the expiration of 56 months following the agreed payment date, it has the obligation in reducing the input tax within the tax period’s VAT return following the expiry of the allowed six-month period. But, as soon as payment is provided, the business or taxable entity will be entitled again in recovering the VAT incurred.
For instance, for a business that received a tax invoice with the amount of AED 10,500 on the 30th of May 2021 and has agreed in paying within the next thirty days, payment will be due on the 30th of June 2021. The company may claim for input tax worth AED 500 on the tax period, 1st of April 2021 up to the 30th of June 2021. But, should the company fail in making the payment up to the 30th of December 2021, eligibility in claiming input tax worth AED 500 will be considered invalid.
In such a case, adjustments are to be made following the 30th of December 2021 in the company’s tax return to reduce AED 500 from the input tax. As soon as the business makes the payment during the later period, it’s going to be allowed in claiming input tax again following the payment.
What transactions aren’t eligible for input tax recovery in UAE?
Input tax can’t be recovered for the following:
Supply of goods or services which isn’t meant for production or making of taxable supplies
- Input tax that is related to a company’s capital asset or some part of it, including the depreciated value
- If the supplier moved goods to a GCC state before tax registration within UAE
- If services were received five years prior to the business’ date of VAT registration in the UAE
- Entertainment expenses such as accommodation food and drinks, events, access to shows, and trips provided for entertainment or please
- Personal use motor vehicles
- Employee related expenses or expenses for the personal benefit of employees except if there’s a contractual or legal obligation of the employer that is registered for VAT in UAE to provide such goods and services
How can I recover VAT in UAE?
The best way in recovering VAT in UAE is to file the VAT return with the help of tax professionals. The tax liability of a business is the difference between VAT for sales payable or output tax for a certain tax period, and VAT on expenses or input tax that is recoverable for the tax period.
Where the number of expenses or input tax exceeds the amount of the company’s output tax, the taxable person will be entitled to getting a VAT refund from the Federal Tax Authority in UAE. Where the sales payable or output tax exceeds the input tax amount, payment for the difference has to be made to local tax authorities.
To ensure proper implementation of VAT recovery in the UAE, consult with tax specialists in Dubai. Talk to the regulated tax agents of VAT Registration UAE today!