UAE VAT News – Public Clarification on Input Tax Related to Mobile Phones

The Federal Tax Authority has released a public clarification (VATPO28) explaining its policy on the recovery of input tax relating to the cost of providing mobile phones, and airtime/ data packages to employees.

Input tax on phones and packages acquired for use by employees will be recoverable provided the business has a strict policy in place to restrict the use to solely business purposes.

The clarification explains the conditions that must be met as follows:

• The business must have a documented policy on the restricted use of phones and packages
• The business will be required to demonstrate that it monitors the use of airtime and packages and takes appropriate action against employees who do not follow the documented policy
• employees should be made aware of the repercussions of not abiding by the policy and the taxable person should retain proof of action taken against employees not complying with the documented policy

As part of the process of monitoring the usage, the taxable person will be expected to consider the variance between the actual usage and the expected average usage for the role.  Any excess usage identified from this monitoring is regarded as non-business use, and input tax recovery will not be allowed unless the additional use is recharged to the employee with output tax, or there is robust additional monitoring in place to substantiate the actual use.

A link to the FTA clarification can be found here. DOWNLOAD

Our comment

This is an important clarification released by FTA as mobile phones to employees is a normal and significant cost for many businesses. It is helpful that the matter has been clarified as this is an area that has been a concern for some time.

We expect the rules, as set out in the clarification, to be applied strictly and it will be important for any business wishing to make a deduction for this type of input tax to get a policy in place. They should also implement a proper communication plan to ensure that employees are fully informed. Full documentation will be essential, and it is important to note that the clarification states 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 accepted. Back-dated policies will not be allowed.  

If you require assistance with this matter, including assistance with drafting policies or updating staff, please get in touch with the BDO tax team or your normal BDO contact.