UAE: Federal Tax Authority issues input VAT recovery guidance for mobile phone packages provided to employees for business use.
The Federal Tax Authority (FTA) of the Emirate has released VAT Public Clarification VATP028 on 6 December 2012 providing guidance for recovery of input VAT relating to mobile phones, airtime (call minutes), and data packages made available to employees for business use. The guidance clarifies that recovery of input VAT on mobile phone expenses is only for companies with a strict business-use policy in place. The taxpayer should also actively comply with the policy.
Non-permissible Recovery of Input
Article 53(1)(c) of the Executive Regulation prohibits the recovery of input tax incurred on goods or services purchased to be used by an employee for their personal benefit without any charge to the employee, unless there is a legal or contractual obligation on the employer to provide such service in order for the employee to perform their role, or it is a deemed supply.
Input Tax Recovery Requirements
The Public Clarification explains that where costs are incurred to make taxable supplies, the taxable person is permitted to recover input VAT incurred on mobile phones, airtime and data packages that are available to be used by employees for business purposes, only if 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, i.e. the business’ details are on the invoices and contracts with mobile supplier and service providers.
- The business has a documented policy that clearly states the following:
- Mobile phones, airtime and packages shall only be used for business purposes; and
- The consequences if such services were used 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 taxable person shall 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 business takes action against employees who use mobile phones, airtime or data packages for personal use, as mentioned in the business’ documented policy.
- The business retains valid tax invoices in respect of the acquired mobile phones, airtime and data packages.
Further, VAT registered businesses with employees working from home needs to determine whether they have, or need to introduce, a strict policy in place. Taxpayers should also determine whether the entire amount of input VAT incurred on mobile phone packages and related telecoms services available for employees should be treated as a business cost. Any Airtime and Packages used in excess of the business plan would be regarded as non-business use. Companies will have to regularly monitor the use airtime and packages and retain justification for the variances. Action must be taken against inappropriate use and must retain valid tax invoices for goods and services acquired.
FTA noted that backdated policies shall not be accepted. Taxpayers are not allowed to change their existing policy to apply the legislation retroactively. Therefore, any input VAT previously declared relating to mobile phone expenses would need to be corrected.
The last date of filing and payment of VAT returns for period ending 30 November 2021 is on 28 December 2021.