New Guide to Input VAT Recovery on Mobile Phones, Data Packs Provided to Employees

It is a common practice for companies in the UAE to enter into agreements with telephone service providers to give mobile phones, airtime and data packages to their employees. This practice has become a necessity during Covid-19 as remote or flexible work turned out to be the new normal. However, the rise in this kind of work arrangement has raised the question of whether employers can recover the related input tax. VAT consultants in Dubai can guide you through the conditions and requirements related to it.

Our evaluation of the input tax recovery on mobile phones, airtime & data packs provided to employees for business use is based on the Public Clarification ( VATP028) issued by the Federal Tax Authority (FTA). Read ahead to know further:

What does the Tax Law say? 

Generally, a taxable person is allowed to recover input tax paid for goods and services used or intended to be used for making taxable supplies. The right to input tax recovery is restricted to the scenarios provided in the VAT Executive Regulation, irrespective of whether the cost was incurred while making the taxable supplies.

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. In our case, an employer acquires Phones, Airtime, and Packages strictly for business purposes as per a has a stringent policy to restrict the use of such Phones,  Airtime, and Packages for business purposes. Here, the right to use Phones,  Airtime, and Packages does not amount to personal benefit for the employee. Consult with VAT consultants in Dubai to gain a better picture of this law.

Key Condition for Input Tax Recovery 

The public clarification states that employers are entitled to input tax recovery on mobile phone expenses only if they have put in place a strict business-use policy. It must be documented and must be actively enforced. Taxpayers are also not allowed to change their existing policy to retroactively apply the new guidance. This means the value of the Airtime and data packs should be determined based on actual historical business usage.  The FTA will not accept any backdated policy. Apart from having a documented business-use policy, the businesses must monitor employees to ensure that they are not using mobile phones, airtime and data packs for personal use. Tax agents in Dubai can help you navigate the input tax recovery more effectively.

Other Major Input Tax Recovery Requirements  

When costs are incurred to make taxable supplies, the businesses are allowed to recover input tax

incurred on mobile phones, airtime, and data packages provided to employees for business purposes. However, they are entitled to input tax recovery only when all of the following conditions are met:

  1. The businesses must be registered for VAT in the UAE
  2. The business acquired the mobile phones, airtime, and packages in its name. The invoices and contracts with the service providers must reflect the details of the business.
  3. The business has a documented policy prohibiting the personal use of mobile phones, airtime, and data packages
  4. The documented policy must specify that the use of mobile phones, airtime, and data packages are restricted for business purposes only
  5. The business should warn of consequences if the employee uses mobile phones, airtime, and data packages for personal purposes
  6. The business must regularly monitor the use of airtime and package and retain justification for a variance
  7. The business must retain valid tax invoices regarding mobile phones, airtime, and data packages

How can Jitendra Chartered Accountants Help You? 

The VAT Public Clarification VATP028 states the top conditions t recover input tax on mobile phones, airtime and data packages provided by an employer to the employees for business use. VAT consultants in Dubai have attempted to decode the top conditions to help the businesses that acquired mobile phones, airtime and data packages for their employees. The businesses are eligible for input tax recovery only if there is a strict documented policy that prohibits the personal use of mobile phones, airtime and data packages.

If a business meets this condition along with all of the other conditions mentioned in the article, tax agents in Dubai such as Jitendra Chartered Accountants (JCA) can help them recover the input tax. JCA has more than 20 years of experience in providing services such as accounting and audit services and has become the top provider of VAT consultancy services in Dubai over the years. We can help you with services such as VAT registration, UAE VAT return filing, VAT record keeping, VAT registration, appeal against VAT administrative penalties etc. Contact our tax agents in Dubai to ensure VAT compliance at affordable prices.