Under UAE VAT regulations, a taxable person may recover input tax paid on goods and services used or intended for making taxable supplies. This includes expenses related to mobile phones, airtime, and data packages provided to employees, as long as they are strictly for business use.

Introduction

However, the ability to recover input tax is subject to specific limitations outlined in the Executive Regulation. Article 53(1)(c) of the regulation highlights scenarios where input tax recovery is restricted, particularly when goods or services are used for the personal benefit of employees without a charge to them.

Conditions for Input Tax Recovery on Phones, Airtime, and Packages

For a business to claim input tax recovery on these expenses, the following conditions must be met:

1. Strict Business Use Policy: The business must have a documented policy that restricts the use of mobile phones, airtime, and data strictly to business purposes.
2. Regular Monitoring: The business must monitor the actual usage of airtime and data packages to ensure compliance with the business use policy.
3. Valid Tax Invoices: The business must retain valid tax invoices for all expenses related to the acquisition of these services.
4. Actions against Misuse: If an employee uses the services for personal purposes, the business must demonstrate that it has taken appropriate action in line with the documented policy.

Non-Permissible Recovery of Input Tax

Input tax recovery is not allowed if the above conditions are not met. Specifically, recovery is restricted if:

• The mobile phones, airtime, or data packages are used for personal purposes without any charge to the employee.
• There is no documented policy in place, or the policy is not enforced.

Practical Implications for Businesses

To ensure compliance with VAT regulations regarding input tax recovery on mobile phones, airtime, and data packages, businesses should:

• Establish Documented Policies: Have clear policies regarding the use of these services.
• Ensure Employee Awareness: Make employees aware of the business use restrictions.
• Monitor Usage: Regularly monitor usage and maintain records that justify business use to support input tax recovery claims.
• Recharge Excess Usage: If additional airtime or data is used beyond what is expected for business activities, recharge these costs to employees and include VAT in the calculation.

Conclusion: Ensuring Compliance for Input Tax Recovery

The recovery of input tax on mobile phones, airtime, and data packages requires adherence to specific VAT regulations in the UAE. By establishing a robust policy, monitoring usage, and maintaining proper records, businesses can ensure compliance and optimize their input tax recovery. Consulting with VAT experts like Stratify can provide tailored guidance to navigate these complexities effectively.