Insights

Considering the uncertainty as to whether a business is entitled to recover the related input tax Input vat recovery on mobile phone, airtime and data packages made available to employees for business use and, if so, what the requirements are to be entitled to input tax recovery, The Federal Tax Authority (FTA) has recently published VAT Public Clarification “VATP028” which provides guidance on the application of the VAT legislation in respect of the recovery of input tax incurred on Phones, Airtime, and Packages acquired for business use.

Clarification Summary clarified that “In instances where an employer acquires Phones, Airtime, and Packages for use by its employees solely for business purposes and has a strict policy in place to restrict the use of such Phones, Airtime, and Packages to business purposes, the right to use the Phones, Airtime, and Packages would not constitute a personal benefit for the employee, provided the value of the Airtime and Packages was determined based on actual historical business usage. Note that backdated policies shall not be accepted”.

The Federal Tax Authority (FTA) has further clarified that the business should be eligible to recover input VAT on such expenses only if all of the following conditions are satisfied:

• The business is registered for VAT and acquired Phones, Airtime(Call Time), and Packages (Data) in its own name (Valid Tax Invoice and Contract with the service provider);
• The business has a documented policy in place which clearly states that the Phones, Airtime, and Packages may only be used for business purposes, and the consequences of any personal use;
• The business regularly monitors the use of call minutes and data packages and retains justification for the variances; and
• The business takes action against employees using phones, call minutes and data packages for personal use in accordance with the documented policy.

(Note that only documented policies which were already in place at the time the Phones, Airtime and Packages were made available to the employee will be considered.)

If all of the above requirements are not met, the recovery of input tax incurred in respect of Phones, Airtime, and Packages will be blocked in accordance with Article 53(1)(c) of the Executive Regulation.