As per UAE VAT law VAT paid on most of the business expenses can be recovered. But certain expenses specified in law, which input tax cannot be recovered. Every business must identify those non- recoverable expenses and do not take any input VAT credit on it.
As per article 53 of Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax, Input Tax shall be non-recoverable if it incurred for the following taxable supplies;
Entertainment services to non-employees
Businesses registered under VAT are not allowed to recover input tax on expenses incurred for providing entertainment to anyone not employed by the business. Entertainment services include hospitality of any kind, including providing accommodation, food and drinks which are not provided in the normal course of a meeting and access to shows or events or trips provided for the purpose of pleasure or entertainment. When the said services are provided to potential clients, customers, officials, shareholders, owners and investors the corresponding VAT paid cannot be recovered.
e.g . Food and drinks provided to a customer during the course of meeting
Motor vehicle which is available for personal use by any Person
If a registered person buys or leases out any motor vehicle in name of the business and uses the same for personal purpose, then the tax borne on such inward supply cannot be recovered in normal course of business. A motor vehicle shall exclude a truck, forklift, hoist or other similar vehicle.
A motor vehicle shall not be treated as being available for private use if it is within any of the following categories;
- a taxi licensed by the competent authority within the State,
- a motor vehicle registered as, and used for purposes of an emergency vehicle, including by police, fire, ambulance, or similar emergency service;
- a vehicle which is used in a vehicle rental business where it is rented to a customer.
Goods or services purchased for use by employees
Registered person cannot recover any tax paid on goods and services purchased for use by employees, e.g. Medical insurance expenses
Goods and services used to make exempt supplies
Input VAT cannot be recovered on expenses incurred for making exempt supplies like. Input Vat incurred on Electricity charges cannot be recoverable.
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