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Non Recoverable Input Tax – Motor Vehicles used for Personal Use

Non Recoverable Input Tax – Motor Vehicles used for Personal Use

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 non-recoverable input tax on motor vehicles used for personal use works:

If a registered business has purchased, rented or leased motor vehicles for use in the business and is available for personal use by any person in the business, then the tax paid on purchase, rent or lease of the motor vehicle cannot be recovered.

For example: Anand Automobiles in Dubai purchases 10 cars from the manufacturer, Orange Cars, in Dubai. Out of the 10 cars purchased, 1 car was used by the owner for his personal use. In this case, Anand Automobiles cannot recover input tax paid on purchase of the 1 car used for personal use.


Note that motor vehicle means a road vehicle designed or adapted for the conveyance of not more than 10 people, including the driver. A motor vehicle does not include trucks, forklifts, hoists or similar vehicles.

In other words, the expenses in relation to the trucks, forklifts, hoists or similar vehicles can be recovered for the Input tax.

Motor vehicles not treated as being available for Personal use:

The law specifies few motor vehicles which are used in the business will not be treated as being available for personal use in the following cases:

  1. It is a taxi licensed by a competent authority within UAE


  1. It is used in a vehicle renting business, where it is rented to a customer

Therefore the expenses incurred on the above motor vehicles are recoverable for Input tax.

List of expenses that can be recoverable for Input tax in respect of the above mentioned motor vehicles are as follows:

  1. Repairs and maintenance

  2. Fuel Expenses

  3. Rent paid for hiring the above cars


Recent clarification on Public transportation:

  1. This Public Clarification discussed the definition of ‘public transportation’ and its interpretation for the purposes of identifying the buses or trains which shall be qualified for zero rate under Article 34 of the Executive regulations.

  2. In this regard, the terms “public transportation” and “private transportation” are interpreted by FTA as follows:

Public transport – “All means of mass transportation used to transport all individuals without specifying any category”.

Private transport – “All means of transportation used to transport a specific group of people under contracts”. Eg: School buses, Transport of employees and Shuttle buses.

  1. It is clearly mentioned that only the buses or trains which are designed for the Public transportation are to be supplied at zero rate. Whereas, if they are specifically designed for the transport of specific group of people then it shall be considered as Private transportation and supply of those vehicles are subject to VAT at standard rate.

  2. However “Clause 4 of Article 46 of the VAT Law and Article 45 of the Executive Regulations” state that any supply of local passenger transport from a place in UAE to another place in UAE by means of land, water or air shall be exempt from VAT.

  3. For the purposes of the exemption, one of the qualifying means of transport listed includes a motor vehicle, including a taxi, bus, railway train tram, mono-rail or similar means of transport, designed or adapted for transport of passengers.


VAT incurred on costs which directly relate to the provision of exempt local transport services are not recoverable. Therefore, where local transport is made for a charge to a defined group of people, rather than the general public, any VAT incurred on the costs of purchasing the means of transport, fuel etc., in order to provide that service is not recoverable.

For example: Fees charged from the students for the supply of school bus transportation services is AED 1000 and the VAT charged @ 5% on the same is AED 50. Cost of repairs and fuel incurred for the transport of bus services are AED 500 and the VAT paid on the same is AED 25. The VAT so paid i.e. AED 25 cannot be recovered for the payment of AED 50 which is received on the supply of bus services.

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