Many businesses enter into agreements with telecommunication service providers to make mobile phones (“Phones”), airtime (“Airtime”) (i.e. call minutes) and data packages (“Packages”) there has been uncertainty among the all business community as to whether a business is entitled to recover the related input tax and, if so, what the requirements are to be entitled to input tax recovery.

This Public Clarification (VATP028) 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.

Article 53(1) (c) of the Executive Regulations prohibits the recovery of input tax incurred on goods or services purchased to be used by an employee for their personal benefit without any 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.

Summary of changes

In the clarification, FTA has set out certain requirements to be met in order to recover the Input Tax which is mentioned below.

The Public Clarification explains that where costs are incurred to make taxable supplies, the taxable person is permitted to recover input VAT incurred on mobile phones, airtime and data packages that are available to be used by employees for business purposes, only if all of the following conditions are met.

  • The business is registered for VAT and acquired Phones, Airtime, and Packages in its own name, e.g. the business’ details are mentioned on the tax invoices and contract with the service provider.
  • The business has a documented policy in place which clearly states the following. – Mobile Phones, Airtime, and Packages may only be used for business purposes. – The consequences of any personal use.
  • The business would be required to demonstrate that it monitors the use of Airtime, and Packages and takes appropriate action against employees who use them for personal benefit in accordance with the documented policy.
  • The business regularly monitors the use of Airtime and Packages and retains justification for the variances between the actual usage and the average Airtime and Packages used for the specific role of the employee business purposes.
  • The business takes action against employees using Phones, Airtime, and Packages.
  • The business remains valid tax invoices in respect of the Phones, Airtime, and Packages acquired.

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.

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