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Non Recoverable Input Tax – Expenses in relation to the Exempt Supplies

Under Article (52) and (53) of Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax there are certain expenses which are not eligible for Input tax recovery. Let us understand the nature of expenses of non recoverable input tax in relation to the exempt supplies:

A supply of Goods or Services for consideration while conducting business in the State, where no Tax is due and no Input Tax may be recovered except according to the provisions of the Decree-Law. The following supplies shall be exempt from Tax under UAE VAT law:

a) Financial services (that are specified in the Executive Regulation of this Decree-Law).

b) Supply of residential buildings through sale or lease, other than that which is zero-rated.

c) Supply of bare land.

d) Supply of local passenger transport.

A registered business cannot recover tax paid on purchase of inputs used to make these exempt supplies.

For example: Prestige Real Estate Agents in Dubai has provided a residential building on lease for AED 10,000 per annum which is an exempted supply of service. The real estate agent incurred AED 5,000 to provide this lease service and also paid the VAT @ 5% of AED 250. Hence, Prestige Real Estate will not be eligible to recover AED 250 paid on expenses as it was used to supply an exempted service.

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