Reclaiming VAT on mobile phones in the UAE: Dos and don’ts

When can businesses in the UAE recover VAT on employees’ mobile phones? The UAE Federal Tax Authority has issued a clarification. 

The clarification lays out criteria for claiming VAT on employees’ phones. The employer must:

• Acquire phones, airtime and/or data packages solely for business purposes 
• Have an appropriate policy to restrict use of the phones to business purposes
  
  

No personal benefit permitted

It also needs to be the case that the actual use of the phones does not constitute a personal benefit to employees. As the guidance points out, UAE rules prohibit the recovery of input tax incurred on goods or services that are provided without 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.”

That is, simply because a company supplies an employee with goods or services, it does not automatically follow that the provision is a business expense which is subject to VAT reclaim. The items in questions must be provided for business purposes, properly understood, and cannot constitute a personal benefit to the employee. 

Active enforcement required

The Federal Tax Authority adds that the above business-use only provisions need to be actively implemented and monitored. Specifically, the business must regularly monitor data and airtime use and justify apparent divergences from proper use.  Moreover, the company must take action against employees that use their business phones for personal use.

From an administrative perspective, the business must be VAT registered and it must acquire the phone, airtime and data packages in its own name. The businesses must also retain all applicable invoices. 

The authority adds that these policies must be in place at the time the employee is supplied with their mobile phones. The authority will not accept backdated policies. 

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