Many companies in the UAE facilitate their employees by providing them with mobile phones so they can communicate amongst themselves. The companies pay for the monthly mobile bills and top up the numbers with calling and data packages as per their suitability. This trend witnessed a rise since the spread of the novel coronavirus that limited business operations to work-from-home. The companies enter agreements on airtime and data packages with mobile service providers. However, an employee may use this facility for his or her personal or private benefit. There has been a confusion if the employer is liable to pay VAT on subscription of such services if the employee uses the service for private use. The FTA has issued a VAT clarification on mobile and packages in this respect to clarify any ambiguities and provide future guidelines for organizations who intend to use such a service for their employees.
This article looks at the VAT Clarification on Mobile and Packages & how it interprets to employers and employees.
VAT Clarification on Mobile and Packages – General Rule of Recovering Input Tax
In general, a taxable person may recover input tax paid on items and services used in, or intended for, the production of taxable supply. However, the decision of the Executive Resolution outlines the instances in which a taxable person can file for input tax recovery.
Conditions of Unacceptability of Input Tax Recovery
Article 53(1)(c) of the Executive Regulation prohibits the recovery of input tax on goods or services purchased for an employee’s personal benefit without any charge to the employee, unless the employer has a legal or contractual obligation to provide such service in order for the employee to perform their role, or it is a deemed supply. When an employer obtains Phones, Airtime, and Packages only for business reasons and has a rigorous policy in place to limit the use of such Phones, Airtime, and Packages to business purposes, the ability to use Phones, Airtime, and Packages does not represent a personal benefit for the employee.
Use for Business Only
The Executive Regulation’s Article 53(1)(c) does not apply when a taxable person can demonstrate that the Phones, Airtime, and Packages are used primarily for business reasons. In addition to having a documented policy on the restricted use of Phones, Airtime, and Packages, the company would be required to show that it monitors the use of Airtime and Packages and takes appropriate action against employees who use the Phones, Airtime, and Packages for personal use in accordance with the documented policy. The taxable person must examine the discrepancy between actual usage and the typical Airtime and Packages used for the specific function of the employee’s business reasons while monitoring the appropriate use of Phones, Airtime, and Packages.
Unless the additional Airtime and Packages are billed to the employee with output tax, or if there is rigorous monitoring in place to prove the actual usage, any Airtime and Packages utilized in excess of the business plan will be considered non-business use.
Workers should be informed of the consequences of not following the policy as part of the recorded policy, and the taxable person should save documentation of any actions taken against employees who do not follow the policy.
Requirements for Recovering Input Tax
Given the foregoing, a firm is eligible to recover input tax on Phones, Airtime, and Packages purchased if these expenditures are paid to produce taxable supplies and the following conditions are met:
- The company has registered for VAT and purchased phones, airtime, and packages in its own name; for example, the company’s information appears on tax bills and contracts with service providers
- The company has a documented policy in place that clearly states that the Phones, Airtime, and Packages may only be used for business purposes, as well as the consequences of any personal use
- The company monitors the use of Airtime and Packages on a regular basis and keeps justification for any variances
- In accordance with the written policy, the company takes action against workers who use phones, airtime, and packages for personal purposes
- The company keeps proper tax invoices for phones, airtime, and other items
It should be noted that only documented policies in effect at the time the employee’s Phones, Airtime, and Packages were made accessible would be reviewed. If all of the foregoing conditions are not completed, the recovery of input tax incurred on Phones, Airtime, and Packages shall be denied in line with Executive Regulation Article 53(1)(c).
About BS Auditing
BS Auditing of Accounts has keen understanding of VAT laws and any changes made by the authorities. Our skilled personnel have full grasp on all issues and laws, and have the uncanny ability to provide the best guidance in these matters. Feel free to contact us:
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