Can we claim VAT paid on mobile phones, mobile bills, airtime, data packages provided to employees in UAE?

Many businesses enter into agreements with telecommunication service providers to make mobile phones (“Phones”), airtime (“Airtime”) (i.e. call minutes) and data packages (“Packages”), available to their employees to perform their roles outside office hours or at locations away from the office. Due to COVID-19, there has been an increase in work-from-home arrangements, resulting in some instances where employers pay for Phones, Airtime, and Packages’ expenses to allow employees to perform their roles remotely. Due to the potential private use of Phones, Airtime, and Packages, there has been uncertainty 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 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.

Solely for Business Use

Article 53(1)(c) of the Executive Regulation does not apply where a taxable person can prove that the Phones, Airtime, and Packages are used solely for business purposes. In addition to having a documented policy on the restricted use of Phones, Airtime, and Packages, the business would be required to demonstrate 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.

As part of monitoring the acceptable use of Phones, Airtime, and Packages, the taxable person shall consider the variance between the actual usage and the average Airtime and Packages used for the specific role of the employee business purposes. If the business acquires Airtime and Packages based on the expected business requirements, any Airtime and Packages used in excess of the business plan would be regarded as non-business use, unless the additional Airtime and Packages is recharged to the employee with output tax, or if there is robust monitoring in place to substantiate the actual use.

Input Tax Recovery Requirements

Considering the above, a business is entitled to recover input tax in respect of Phones, Airtime, and Packages acquired if these costs are incurred to make taxable supplies and the following requirements are met:

• The business is registered for VAT and acquired Phones, Airtime, and Packages in its own name, e.g. the business’ details are reflected on the tax invoices and contract with the service provider;
• The business has a documented policy in place which clearly states that the Phones, Airtime, and Packages may only be used for business purposes, and the consequences of any personal use;
• The business regularly monitors the use of Airtime and Packages and retains justification for the variances;
• The business takes action against employees using Phones, Airtime, and Packages for personal use in accordance with the documented policy; and
• The business retains valid tax invoices in respect of the Phones, Airtime, and Packages acquired.

Note 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 considered.

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.