Most VAT charged on genuine business costs can be recovered on your VAT return. Certain categories cannot be, no matter how clearly the cost relates to the business. Claiming them is a common error, and it is picked up when the FTA reviews a refund or audits a return.
The main blocked categories
- Entertainment provided to customers, suppliers, potential clients, officials or shareholders, including hospitality, meals and event tickets
- Motor vehicles that are available for personal use, even if bought in the company name
- Goods and services bought for employees’ personal benefit, unless you are legally obliged to provide them, they are contractual, or they are a deemed supply
The motor vehicle trap
A car registered to the company is not automatically recoverable. The test is whether it is available for private use. Vehicles genuinely restricted to business use, such as a delivery van or a pool car with a documented policy, are treated differently from a car the owner drives home each evening.
Conditions that apply to everything else
- You must hold a valid tax invoice showing the supplier’s TRN and the VAT charged
- The purchase must relate to taxable supplies, not exempt ones
- You must have paid, or intend to pay, the supplier within six months of the agreed payment date
Exempt activities change the picture
If your business makes both taxable and exempt supplies, such as certain financial services or residential leasing, input VAT has to be apportioned. Only the part relating to taxable supplies is recoverable, using the standard method unless the FTA has approved a special one.
Fix it before the FTA finds it
If you have been reclaiming blocked VAT, correcting it yourself through the next return or a voluntary disclosure is far cheaper than waiting for an assessment. The FTA treats a business that corrects its own error very differently from one that does not.
Questions we are asked about this
Can I reclaim VAT on staff meals?
Generally no, where it is a personal benefit for employees, unless you are legally or contractually required to provide it. Simple refreshments at the workplace are treated differently from entertainment.
What if I lost the tax invoice?
Without a valid tax invoice the input VAT is not recoverable. Ask the supplier for a duplicate before the return is filed.
Can I reclaim VAT on a car used for both business and private trips?
If the vehicle is available for personal use, the input VAT is blocked. Availability, not actual use, is the test.
Need help with this? VATAXSYS, VAT and Tax Consultant, handles vat filing for businesses across the UAE. Call +971 55 240 3135 or message us on WhatsApp for a free consultation.