With the introduction of the VAT, there are a few types of expenses available, which are about the input tax recovery and these are not allowed on them as well. In fact, for every business expenses, the VAT is important to understand. And when it comes to the business expenses on which input VAT recovery gets blocked is categorized by three broad categories.

List of 3 Input Expenses in Which VAT is Blocked in UAE

  • Entertainment expenses
  • Motor vehicles for personal purposes
  • Employee related expenses

The Entertainment Expenses

The businesses that are registered under the VAT will not get the permission for recovering the input tax on the expenses, which have been acquired only for entertainment purposes. It includes the potential clients, shareholders, officials, investors and owners in the business. There are different types of entertainment expenses available, which are not allowed for the input VAT recovery contains hospitality like food, accommodation and etc. These are mainly for the entertainment purpose and that is why these are not included in the VAT recovery. When a company sustains these kinds of expenditure, this will not recover VAT gained on these expenses.

Motor vehicles for personal purpose

The motor vehicles are often used as the business activities as well. Eventually, a lot of people also use their motor vehicles for business too and those who are business or taxable person under the VAT are simply allowed for recovering VAT, which have been incurred on the lease, purchase of the rental motor vehicle. But definitely there is a catch in the whole process.

If any of the businessperson uses their motor vehicle for their personal use, which is made for their business use only, will lose the registration. The registrant will not be able to recover VAT incurred on lease, purchase or rent of that motor vehicle. Here, motor vehicle means any sort of road vehicle, which has been designed or even modified for conveyance of no more than almost 10 people, including driver.

The motor vehicle, which is utilized in business, is not at all treated as being accessible for the personal use in a few cases such as:

  • Within UAE, this is mainly a taxi licensed by competent authority
  • The registered motor vehicle is utilized for the emergency purpose like it can be used as a fire vehicle, police van or ambulance and some of the similar emergency services.
  • The motor vehicle is also used in the vehicle renting business, where this is to be only rented by a client.

Employee related expenses

These kinds of expenses by the business for employees, who are not permitted for the input VAT recovery. If any of the service or goods is bought for the employees with no single charge from them then the VAT paid on the employee-related expenses will not count as the recoverable one. Basically, the services and goods, which are only for the personal benefit of the employees, are simply not recoverable. But there is an exception to the rule.

When an employer comes with the legal obligation for offering some of the services and goods to the employee under an applicable UAE labor law and this is simply included in the labor contract, the employee-related expense might be easily recovered for the VAT.

There are lots of business expenses available on which input VAT is blocked. GCC Fillings is one of the popular companies that will assist you with the VAT registration procedure in UAE and other VAT related aspects. The company offers proper guidance throughout the entire process.

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